COMPETITION AUTHORITY

Competition Authority Decision of 16th December, 1996 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No CA/13/96 - United Utilities Plc/Bronica Limited

Decision No.  476

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Competition Authority Decision of 16th December, 1996 relating to a proceeding under Section 4 of the Competition Act, 1991

Notification no. CA/13/96 -  United Utilities plc/Bronica Limited.

Decision No 476.
 
Introduction

1.	This decision concerns arrangements for the sale of the entire issued share capital of Jones Environmental Limited (JEL) to Bronica Limited (Bronica). It is essentially a management buyout by two executive directors of JEL, who had been managing the company since 1990. The arrangements which included a share purchase agreement, a bond facility and management services agreement and two service contracts, were notified to the Competition Authority on 29 March 1996,  with a request for  a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to issue a certificate, a licence under Section 4(2).

The Facts

(a)  The subject of the notification

2.	The notification involves a share purchase agreement, a bond facility and management services agreement  and two service agreements all dated 25 July 1995. Following the acquisition of the entire issued share capital of JEL by Bronica, United Utilities Plc (formerly North West Water Group Plc) (NWWG) agreed to provide bond facilities  and certain management services to Jones Environmental (Ireland) Limited (JE(I)L), JEL's subsidiary and two executives of JEL entered into employment contracts with the company. 

(b) The parties involved

3.	NWWG  is a UK based company which is engaged in the business of the supply of water and the provision of core water and wastewater services both in the UK and internationally. It is also involved in the manufacture and supply of process equipment for the water industry worldwide in the form of water and wastewater processes and chemicals, disinfectation and solids handling equipment. It is one of the world’s largest water and wastewater businesses providing services to 7 million people in North West England and 21 million people overseas. NWWG also owns NORWEB plc which is involved in the supply and distribution of electricity to approximately 4.7million people in the North West of England. It is also involved in the development of generation projects and in the supply of gas through its 75% owned subsidiary NORWEB Gas Ltd. NWWG controls four Irish companies namely, Ulster International Finance Limited, NORWEB Enterprises Limited, Portmanteau Enterprises and North West Water Ireland. 

4.	Bronica was set up in 1995 and is a holding company for the shares of JEL which in turn holds the shares in JE(I)L. Bronica is wholly owned by Messrs Bateman and Fenton who each hold a 50% share in the company. JE(I)L is an Irish registered company which is involved in the design, installation and commissioning of water and wastewater treatment plants and the provision of treatment systems for effluent to local authorities and other customers. JE(I)L’s turnover during the financial year ended 31/3/95 was IR£7.9m.

(c)  The market

5.	The market concerned is that for the design, installation and commissioning of water and waste treatment plants and the provision of treatment systems for effluent to local authorities and other customers. According to the parties there are over 100 companies involved in supplying such services in the State. Customers may also obtain these services from companies abroad and it is estimated that there are approximately 300 to 500 suppliers of the service in the UK and 1,000 in the rest of the EU. It was submitted that 20% of the Irish market is supplied by overseas companies. [The total market turnover in the State is stated to be approximately IR£100m, IR£3bn in the EU and IR£15bn worldwide.]

6.	The market is stated to be highly competitive. All EU companies are free to operate in the Irish market. There are no statutory licences or authorisations required to enter the market. It is necessary however for companies wishing to enter to have bond facilities in place similar to those which are the subject of this notification. These bond facilities are generally required by local authorities and other customers before they enter into any business agreements with companies supplying the relevant services.

(d) The arrangements 

7.	The notified arrangements relate to a share purchase agreement, a bond facility and management services agreement and two service agreements all of which are dated 25 July 1995.

(i) The share purchase agreement
8.	This is an agreement for the sale of the entire issued share capital of JEL, between NWWG, Bronica, JEL, JE(I)L, Christopher Bateman and Barry Fenton. It is essentially a management buyout by Messrs Bateman and Fenton who were the sole executive directors of JEL and had management control over the company since it was acquired by NWWG in 1990. In 1995, Bronica was set up by these two individuals to act as a holding company to purchase JEL and hold its shares.

(ii) The bond facility and management services agreement
9.	This is an agreement between NWWG, Bronica, JEL, JE(I)L, Christopher Bateman and Barry Fenton whereby NWWG agrees to procure the provision of bond facilities and other management services to JE(I)L  for the duration of the agreement. NWWG purchased JE(I)L in November 1990 and had been providing such bond facilities to the company since that date. Under the present arrangements it agreed to continue to do so following the sale of JEL to Bronica. The purpose of the bond facility and management services agreement is to protect NWWG for so long as it has obligations under the bond facilities as described in the agreement. The bonds are normally provided by insurance companies and NWWG is required to counter-indemnify the insurance companies in respect of the liabilities they may suffer if the bonds are called. The bonds are both performance and payment bonds. NWWG also agreed to provide certain other services to JE(I)L as set out in clause 2.3 of the agreement

10.	Clause 4 of the agreement provides that:

‘4.1   In consideration of NWWG continuing to make available to JE(I)L the  Bond Facilities for the duration of this Agreement, each of the Companies hereby jointly and severally undertakes and agrees and each of the Covenantors hereby Severally undertakes and agrees to procure that for the duration of this Agreement none of the Companies shall without the prior written consent of NWWG which consent shall not be unreasonably withheld:

4.1.1  other than those required to secure such bank borrowings as are specified in the Business Plan and to finance the purchase of the entire issued share capital of JEL create, grant or issue or agree to create, grant or issue any mortgages, charges or debentures; 

4.1.2    create or issue or agree to create or issue any share or subordinated loan capital  or loan stock or give or agree to give any option in respect of any share or subordinated loan capital or loan stock other than within or to any member of the Bronica Group;

4.1.3  create any subsidiary other than for the purposes of carrying on a similar business to that carried on by JE(I)L and other than on terms that such subsidiary accepts and agrees to be bound by the terms of this Agreement  as if such company had been named herein;

4.1.4  purchase or otherwise acquire any share or loan capital or loan stock of any company;

4.1.5  acquire any business or a substantial part thereof;

4.1.6  other than normal trade credit and the creation of or entry into of bonds in the ordinary course of business, increase its total borrowing facilities, borrow any money, lend any money, guarantee or assume any obligation or incur any other liability in excess of a certain amount in aggregate;

4.1.7 save as permitted under clause 4.1.1, pledge or charge any assets or permit any of its assets to be subject to any lien or encumbrance or security interest of any kind in excess of a certain amount in aggregate in any one Financial Year;

4.1.8 save as provided for in the Business Plan, pay or declare any dividend or declare or make any distribution on any shares in any of the Companies, or redeem, reclassify, purchase or otherwise acquire any shares in any of the Companies;

4.1.9  Except as between the Covenantors or upon the death of the Covenantors or either of them transfer any shares in any of the Companies;
4.1.10  other than in accordance with the existing terms of the Bonds, take any action to amend, alter, extend or substitute the Bond Facilities or any of them;

4.1.11  make any loan, advance or give any credit to any person (other than (a) existing staff loans; (b) normal business expenses not exceeding a certain amount in aggregate in any Financial Year to either of the Covenantors or to any Connected Person of the Covenantors; and (c)normal trade credit);

4.1.12  other than as provided for in Clause 4.4.4, enter into any indemnities, guarantees or suretyships except those implied by law or given in relation to the products supplied or services provided by it or otherwise in its normal course of business;

4.1.13  increase the rate of compensation (including wages, salaries and taxable benefits) of any employee or director of any of the Companies beyond a figure in excess of that agreed from time to time between the parties hereto in the case of each such employee or director;

4.1.14 amend any employee benefit plan relating to or for the benefit of the Covenantors or any connected person of the Covenantors , or authorise or pay any bonuses, severance payments or similar payments to either of the Covenantors or to any Connected Person of either of the Covenantors or to any shareholder of any company within the Bronica Group;

4.1.15  otherwise than in the ordinary course of the existing business, sell, assign, lease or transfer any of its assets with a value in excess of a certain amount in aggregate in any one Financial Year;

4.1.16  other than activities carried out in support of or ancillary to the business of design, construction and operation of water, waste water and sludge treatment plants, engage in any transaction or enter into any agreement or legal relationship;

4.1.17  other than in the ordinary course of its business cancel any debt owed  to it, waive any right, pay any of its non-current obligations or liabilities or otherwise pay to any person or entity any amount not required to be paid thereto;

4.1.18 purchase, take on lease, licence or sell any real property other than a 
lease for less than three years and other than any lease, license or sale or any real property for an amount (in respect of such sale, lease or license) of less than a certain amount;
 
4.1.19  save as may be required by any applicable law or generally accepted accounting principles applicable in Ireland, change any accounting practice followed or employed  in preparing the accounts of the Companies;

4.1.20 alter its Financial Year;

4.1.21  amend its memorandum and articles of association;

4.1.22  amend the Business Plan;

4.1.23   amend, alter, substitute or terminate the Service Contracts;

4.1.24  factor or discount any of its debts; or

4.1.25  enter into any agreement, contract or commitment to do any of the foregoing

Provided always that consent shall be deemed to have been granted pursuant to this clause if within a period of fifteen Business Days following receipt by NWWG of a written communication setting out all the relevant details concerning the proposal  in respect of which the consent of NWWG is being sought, NWWG shall not have

(a)            responded in writing to the relevant company or companies setting out the reasons for its decision to withhold its consent to the proposal; or

(b)            consented in writing to the proposal

 Provided further  that nothing contained in the Agreement and in particular the restrictions contained in this Clause 4 shall require any of the Companies to seek any consent where it requires to pursue any right of action it may have arising out of or in connection with the Share Purchase Agreement or where the Companies are required by law to carry out a transaction which would otherwise require the consent of NWWG pursuant to this Clause 4.1.

4.2     Each of they Companies hereby further jointly and severally undertakes and agrees and each of the Covenantors hereby Severally undertakes and agrees to procure  that for the duration of this Agreement:

4.2.1  each of the Companies will keep NWWG informed of the progress of its business as required from time to time;

4.2.2 each of the Companies will without prejudice to the foregoing, furnish to NWWG:

(1)  audited financial statements audited by Price Waterhouse or KPMG (or with the prior written consent of NWWG such other firm of auditors as the relevant company may select) including a balance sheet and profit and loss account in respect of each financial year forthwith upon the same becoming available and, in any event, not later than the expiration of 120 days from the end of the financial year to which  the balance sheet and profits and loss account in question relate together with the directors’ and auditors’ report thereon;

(2)  monthly management reports and management profit and loss accounts and balance sheets (in a form reasonably satisfactory to NWWG having regard to the existing management and accounting systems and the information reasonably available to the Companies) in relation to the Companies within a period of fourteen days after the end of each calendar month to which the said reports, accounts and balance sheet relate;
(3)  detailed monthly progress reports  (in a form reasonably satisfactory to NWWG having regard to the existing management and accounting systems and the information reasonably available to the Companies) in respect of each of the contracts in which JE(I)L is involved and in respect of which Bond Facilities exist within a period of fourteen days after the end of each calendar month to which the said progress reports relate;

(4)  notification in writing forthwith upon becoming aware of any material circumstances or event likely to give rise to a claim under or in connection with the Bond Facilities; and

(5) (subject  always to the provisions of clause 4.1) notification in writing of the creation by any of the Companies from time to time of any pledge, lien, charge, encumbrance or security interest of any kind over its assets in excess of a certain amount in any one Financial Year;

4.2.3  NWWG shall be entitled from time to time upon the giving of reasonable notice to send a representative to any of the Companies to inspect the books and records of the Companies and work-in-progress of any of the Companies;

4.2.4  Each of the Companies will co-operate fully with and facilitate such representative in connection with any inspection contemplated by Clause 4.2.3.

4.3 Each of the Covenantors hereby Severally undertakes and agrees that for the Duration of this Agreement:
 
4.3.1  he will comply in all material respects with the terms of his Service Contract; and
4.3.2 he will not, without the prior written consent of NWWG, dispose of any of his shares in Bronica except to the other Covenantor and as a result of transmission of shares on death.  

4.4 NWWG agrees to keep all information obtained by it pursuant to the terms of this Clause 4 and not to disclose it to any third party other that its advisers and except where such disclosure is required  by law or regulation or by order of a court of competent jurisdiction or is required by any revenue authority. 

In clause 6 each of the covenantors undertakes that, for a period of three years after the sale of JEL, he will devote all of his time to the affairs and interests of the companies and will not be concerned or interested in carrying on any other business (other than as a shareholder of not more than 5% of any class of securities traded on a recognised securities market).

(iii) The Service Agreements

11.	Two identical service agreements, one between JE(I)L and Chris Batemen and the other between JE(I)L and Barry Fenton were also notified. These provide for the employment of Messrs. Bateman and Fenton as joint managing directors of JE(I)L for a period of five years from the date of the agreement and from year to year thereafter, unless terminated by either party giving written notice.

12.	Clause 6 of the agreement provides that for the duration of his employment, the executive shall not be involved directly or indirectly in any other business. However he, his spouse and children under 18 years of age may acquire an interest not exceeding 5% of any class of securities in a publicly quoted company or in any other company which does not compete with the business of the group companies.

13.	Clause 7 provides the executive may not at any time during his employment or afterwards disclose any confidential information (including processes, inventions, trade secrets, accounts, finances and dealings) relating to the company and its subsidiaries which he received during his employment. He must endeavour to prevent disclosure of any confidential information and must notify the board if he has reason to believe that confidential information has come into the possession of a third party.

14.	Clause 8 prevents the executive for a period of one year after termination of employment from soliciting any company, firm or person which was a customer of the company or group in the year preceding termination of his employment. Similarly clause 9 prevents him for a period of one year from soliciting any employees of the company or group.

15.	Clause 10 prevents the executive for a period of six months after termination of employment from becoming engaged in a competing company within Ireland (including Northern Ireland), if such competition is in the specific area of responsibility of the executive.

16.	Clause 11 prevents the executive, after termination of employment, from representing himself as being in any way connected with or interested in the business of the company or group.

17.	Clause 14 provides that any invention, design, discovery, arrangement, scheme or improvement in procedure relating to the company, its holding company or subsidiaries, made or devised by the executive in the course of his service with the company shall be disclosed to the company and shall be the property of the company. The executive will be required to join the company in making application for patent to vest the title of the same in the company.

(e) Submissions of the parties

Arguments in support of a certificate
18.	Arguments were advanced only in respect of the bond facility and management services agreement. The parties submitted that the arrangements did not have as their object or effect the prevention, restriction or distortion of competition. Bond facilities are necessary because they are required by consumers for contracts carried out by JE(I)L. When it owned JE(I)L, NWWG procured the provision of such bond facilities to the company and counter indemnified the insurance companies. Without the continued procurement of bond facilities the sale would not have gone ahead as there would be no bond facilities for contracts which JE(I)L is currently involved in. Clause 9 provides that NWWG will cease to procure bond facilities or to be involved when alternative bonding arrangements are secured by JE(I)L itself.

19.	It was argued that clause 4 which restricted Bronica from making further financial commitments without the consent of NWWG did not restrict competition. An element of control over Bronica’s financial dealings was necessary to minimise risk given NWWG’s exposure on the existing bonds. Similarly it was argued that clause 6 restraining the covenantors from engaging in any competing business and obliging them to work full-time with JE(I)L was not restrictive. According to the parties this clause was reasonable and necessary for the successful operation of the business. They quoted from Scully Tyrrell to support their claim. In addition it was submitted that  the clause was necessary for the minimisation of the risk to which NWWG is exposed. Finally it was submitted that the arrangements would not affect the number of competitors in the market.

Arguments in support of a licence

20.	The parties submitted that the bond agreement satisfied all of the requirements for a licence under Section 4(2). It was argued that the agreement did not impose on the undertakings concerned terms which were not indispensable to the attainment of its objectives. The purpose of the agreement was to provide the necessary bond facilities to JE(I)L so that it could continue trading. NWWG wished to have a certain element of control over the operation of JE(I)L in order to minimise the risk involved. The terms of the agreement were essential to obtain its objectives but did not exceed what was necessary.

21.	The agreement did not afford undertakings the possibility of eliminating competition in respect of a substantial part  of the products or services in question. Apart from the provision of bond facilities NWWG had no further presence in the market and therefore the agreement had no effect on competition. 

22.	In addition it was submitted that the agreement, having regard to all the relevant market conditions, contributed to improving the production or distribution of goods or provision of services and to promoting economic growth. If NWWG had not provided the bond facilities JE(I)L would have to curtail its trading. The sale could not have gone ahead as management were not in a position to provide bond facilities at the time and also customers would not have allowed a change in the existing bond facilities. It was more efficient for NWWG to continue providing bond facilities rather than forcing JE(I)L to put such facilities in place themselves. Consumers would benefit because of the greater efficiency of this arrangement which would also increase JE(I)L’s competitiveness in the market.

23.	It was further argued that the agreement did not:
	(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
	(b) limit or control production, markets, technical development or investment;
	(c) share markets or sources of supply;
	(d) apply dissimilar conditions to equivalent transactions with other trading parties 	thereby placing them at a competitive disadvantage; 
	      or
	(e) make the conclusion of contracts subject to acceptance by the other parties of 	supplementary obligations which by their nature or according to commercial usage have 	no connection with the subject of such contracts and even if the agreement did any of the 	foregoing, the Authority should grant a licence because the agreement met the 	requirements for a licence as set out above. 

Assessment

(a) Section 4(1)

24.	Section 4(1) of the Competition Act, 1991, prohibits and renders void all agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State.

(b)  The Undertakings and the Agreement

25.	Section 3(1) of the Competition Act defines an undertaking as ‘a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service.’

26.	NWWG is a corporate body which is engaged for gain in the supply of water and wastewater services. JE(I)L is also a corporate body engaged for gain in the provision of similar services. Messrs. Fenton and Bateman are the beneficial owners of the entire issued share capital of Bronica and are engaged for gain. Consequently all of the parties involved are undertakings within the meaning of the Act.

(c) Applicability of Section 4(1)

The share purchase agreement

27.	This agreement provides for the sale by NWWG of the entire issued share capital of JEL to Bronica. It is essentially a management buyout by Messrs. Batemen and Fenton, who had been managing JEL since its acquisition by NWWG in 1990. The Authority has previously indicated on numerous occasions that it does not consider a sale of business per se  offends against Section 4(1). The particular sale in this case does not pose any threat, actual or potential to competition in the relevant market. The market concerned, that for the provision of water and waste treatment plants, is highly competitive with over 100 companies involved in supplying such services in the State. Customers may also obtain these services from overseas companies.  There are no statutory barriers to entry  into the market, the only requirement being that companies wishing to do business have bond facilities in place similar to those in the present notification. Therefore the Authority does not consider the share purchase agreement offends against Section 4(1).    

The bond facility and management services agreement

28.	This agreement provides that NWWG will continue to procure the provision of bond facilities and certain management services to JE(I)L following its sale by NWWG  to Bronica.

29.	Clause 4 of the agreement sets out a number of restricted transactions which may not be undertaken by the companies for the duration of the agreement without the prior consent in writing of NWWG. These restrictions relate inter alia to the issuing of loans, mortgages, charges or debentures; disposal  of assets or shares; setting up subsidiary companies; acquisition of shares in other companies; alteration of employee salaries or employee benefits; entering into contracts other than those which are required by law or arise in the normal course of business and standard accounting and book-keeping practices. In addition each of the companies undertakes to keep NWWG informed of its progress and to furnish audited accounts, monthly management reports and management progress reports. NWWG shall be entitled to inspect the books, records and the work-in-progress of the companies from time to time. Each of the convenantors undertakes that, for the duration of the agreement, he will comply with the terms of his service contract and will not dispose of any of his shares in Bronica except to the other covenantor and as a result of the transmission of shares on death.    

30.	The bond agreement effectively obliges JE(I)L to continue to obtain bond facilities from NWWG for a time after it has sold the company to Bronica. The parties have claimed that the sale could not have taken place without the continued procurement of bond facilities by NWWG, as management were not in a position to provide bond facilities at the time. They argued that the arrangement was for a limited period of time and would cease as soon as JE(I)L secured alternative bonding arrangements. In addition it was argued that the restrictions in clause 4 afforded NWWG an element of control over the financial dealings of Bronica and this was desirable to protect NWWG given its exposure on existing bonds. Similarly it was argued that the restrictions in clause 6 obliging the covenantors to devote all of their time to JE(I)L was necessary for the successful operation of the business and to minimise the risk to which NWWG was exposed.

31.	In Hickson/Angus the Authority considered that a similar restriction whereby AFCL was obliged to obtain 90% of its requirements of a particular chemical product from Angus, following the sale of AFCL by Angus to Hickson International plc offended against Section 4(1). In that decision the Authority also referred to a number of similar arrangements which were found to be in breach of EU competition rules. The Authority considers that the situation in this case is similar to that in Hickson/Angus insofar as NWWG continues to exercise some control over a business which it has effectively sold.

32.	While accepting the arguments put forward by the parties that it was not possible to put in place alternative bonding arrangements at the time of the sale, the Authority nevertheless considers that the arrangement  whereby a company which has sold a business continues to exercise control over that business restricts competition and offends against Section 4(1). It is also relevant that although NWWG is no longer operating in the market there is no restriction on it re-entering the market at any time in the future. Should it decide to do so it would have, in addition to whatever market share it would gain,  control over a competitor and this would raise serious concerns from a competition aspect. Consequently the bond agreement offends against Section 4(1).

33.	Clause 6 prevents the covenantors from becoming involved in any other business for three years after the sale of JEL to Bronica. The covenantors are essentially the purchasers of JE(I)L and under the terms of the service agreements they have agreed to become employees of JE(I)L for a period of five years. Therefore the requirement that they devote all of their time and interest to the company is not unduly restrictive and is considered to be necessary for the successful operation of the business. Indeed it would appear to be in the interests of the covenantors to devote all of their time to the business which they have just purchased. Therefore the restriction in clause 6 does not offend against Section 4(1).

The service agreements

34.	The service agreements provide for the employment of Chris Bateman and Barry Fenton as joint managing directors of JE(I) L for a period of five years  from the date of the agreement.

35.	Clause 6 of the service agreements provides that, during the continuance of the agreement, the executive must not be engaged, directly or indirectly, in any way in any other company. The Authority accepts that a restriction of this nature on an employee during the course of his employment is reasonable and necessary in order to protect the proprietary interests and ensure the successful operation of the company and therefore does not offend against Section 4(1).

36.	Clause 7 involves an undertaking by the executive that he will not divulge any confidential information (including processes, inventions, trade secrets, accounts, finances and dealings) relating to the company, its subsidiaries, customers or clients. The Authority has previously indicated that it accepts an unlimited restriction on divulging confidential information. However the Authority considers that the wording of this clause is designed to include a restriction on the use of technical know-how. The Authority considers that the design and installation of water and waste water plants clearly involves technical know-how. The Authority dealt with the issue of technical know-how at length in ACT/Kindle. It has indicated that a restriction for a period of five years is sufficient where technical know-how is involved. It would be concerned that such a clause could be used to prevent the executive from re-entering the market after the expiry of the five year period

37.	Clause 8 contains an undertaking by the executive that he will not solicit any customers of the company or group for a period of one year after termination of his employment. Similarly clause 9 prevents the executive from soliciting employees for a period of one year. In Apex/Murtagh, the Authority accepted that a post employment restriction of one year on soliciting customers of a business was necessary to protect the legitimate interests of the company. The Authority considers that this provision does not offend against Section 4(1).[See Sedgwick Dineen/Legal and Commercial Insurances Ltd - Decision no. 332]
38.	Clause 10 provides that the executive may not be engaged in a competing business in Ireland or Northern Ireland for a period of six months after termination of employment, if such competition is in the specific area of responsibility of the executive. In its notice on employee agreements, the Authority indicated that a restriction which seeks to prevent a former employee from entering the market as a competitor offends against Section 4(1). The restriction in this case does not amount to a total prohibition on competition and is only for a period of six months The Authority considers that such a restriction may be necessary to protect the company’s customer base in the relevant area since the executive would be in a strong position to solicit former customers were he in a position to compete with Bronica  in that area. As the restriction is only for a period of six months, the Authority does not consider that it would have any serious repercussions for the executive were he to attempt to re-enter the market. Therefore the Authority does not consider that clause 10 offends against Section 4(1). 

Applicability of Section 4(2). 

39.	Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement which offends against Section 4(1) but which ‘having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not-
(i)	impose on the undertakings concerned terms which are not 	indispensable to the attainment of those objectives:
(ii)	afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.

40.	The bond facility and management services agreement provides for the provision of bond facilities and other management services by NWWG to Bronica. Bond facilities are generally required by customers before they enter into business agreements with companies engaged in the water and waste water business. If Bronica did not have access to these bond facilities it would be unable to provide the services in question and its business would be seriously disrupted. Therefore the agreement contributes to improving the provision of a service. It also promotes technical and economic progress as without the existence of the bond agreement, a competitor which was operated by individuals who had vast experience in the market would not be in a position to operate and hence that expertise would be lost. Customers of Bronica also benefit from the arrangement as they can do business with the company knowing that adequate bonding facilities are in place which may be called upon if necessary. 

41.	The Authority does not consider that the bond agreement affords the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the market in question. There are a large number of companies involved in providing water services and customers are free to obtain such services from any of these. The agreement therefore satisfies the requirements of Section 4(2).   In the circumstances the Authority regards the agreement as necessary to avoid disruption to the operation of Bronica in the short-term. However if such an arrangement were to continue indefinitely, it would raise some concerns from a competition aspect, particularly if NWWG were to actively re-enter the market as a competitor. Consequently the Authority considers that  a licence could be granted, for a period of five years from the date of the notification.

The Decision

42.	NWWG,  Bronica, JEL,  J(E)ILL, Christopher Batemen and Barry Fenton are undertakings within the meaning of the Competition Act and the notified share purchase agreement, bond facility and management services agreement and service agreements are agreements between undertakings.  In the Authority's opinion the bond agreement offends against Section 4(1) of the Competition Act, 1991 but satisfies the requirements of Section 4(2) of that Act.  The Authority has, therefore, decided to grant a licence in respect of the notified bond agreement.  The Authority considers that the licence should operate for a period of five years from the date the arrangements were notified to the Authority, i.e. 29th March, 1996.  The licence, therefore, applies from 29th March, 1996 to 28th March, 2001.  It is not considered necessary to attach any conditions to the licence.

The Licence

43.	The Competition Authority has issued the following licence:

The Competition Authority grants a licence under Section 4(2) of the Competition Act, 1991 to the bond agreement between United Utilities Plc, Bronica, JEL, JE(I)L, Christopher Bateman and Barry Fenton notified on 29th March 1996 under Section 7 of the Competition Act, 1991, on the grounds that, in the opinion of the Authority, all of the conditions of Section 4(2) of the Competition Act, 1991 have been fulfilled.

The licence shall apply from 29th March, 1996 to 28th March 2001.

For the Competition Authority

Patrick Massey
Member
16th December, 1996.