Irish Competition Authority Decisions

1. An agreement between Food Industries plc (Food Industries) and Norish plc (Norish), for the purchase and sale of shares in Gyrtna Limited (Gyrtna) containing a non-compete clause was notified to the Competition Authority on 30 September 1992. The notification requested a certificate or, in the event of a certificate being refused, a licence.

2. The notification relates to an agreement dated 1 May 1989 between Food Industries and Norish whereby Food Industries agreed to sell a portion of its entire share capital holding in Gyrtna to Norish. The agreement also contains a non-compete provision.

3. Food Industries and Norish are limited companies incorporated in the State. Food Industries is involved in the food processing business while Norish and Gyrtna are engaged in the provision and maintenance of food refrigeration equipment. Gyrtna is also a limited company registered in the State and, as a result of a separate agreement of the same date as that notified, is the parent company of Eirfreeze Limited (Eirfreeze). Following the acquisition, Gyrtna became known as Norish (Eirfreeze) Limited.

4. The notification relates to an agreement, dated 1 May 1989, for the sale by Food Industries of two-thirds of the share capital of Gyrtna to Norish. Under the terms of the agreement, Norish had the option of acquiring the remaining third of the company. Clause 6.03(a) of the agreement prevents the vendors from competing in the same business as that sold for a period of five years from the date of completion of the agreement. Clause 6.03(b) of the agreement prevents the vendors from soliciting or enticing orders, for the same period, from any persons or companies who were customers of Gyrtna on, or twelve months prior to, the date of completion. This clause also prevents the vendors from soliciting employees from Gyrtna for the same period of time.

(d) Subsequent Developments

5. The parties advised the Authority by letter dated 31 August 1993 that on 16 September 1992, Norish had exercised its option to acquire the remaining one-third of the share capital of Gyrtna. They submitted that, in order to secure the full transfer of the goodwill, a restriction on the vendors competing with the purchaser for 2 years from that date would be justified. They indicated that the original non-compete clause would expire on 31 July 1994 and that this was less than two years from the time of the acquisition of the balance of the shares by virtue of the exercise of the option. Consequently they considered it should not be regarded as offending against section 4(1).

5. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices 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 are prohibited and void'.

6. 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.' Both Food Industries and Norish are corporate bodies engaged for gain in the provision of goods and services and are, therefore, undertakings.

7. The agreement for the acquisition of the majority shareholding in the business and the grant of the option to acquire the balance predates the coming into force of the Competition Act. Effective control of the business which was the subject of the agreement had been transferred prior to the Act. In the Authority's view, the prohibition in Section 4(1) only applies to a current or continuing contractual commitment or one entered into subsequent to the coming into force of the Act [1]. As the merger or sale element of the 1991 transaction was discharged prior to the commencement of the Act, that aspect of the arrangements does not come within the scope of Section 4(1).

8. The agreement contains a five-year non-compete clause which applied from the 31 July 1989. The Authority has indicated in a number of previous decisions that it normally regards a two-year non-compete clause as being sufficient for the complete transfer of goodwill in a sale of business. In the case of this notification, however, the Authority believes that as Norish only acquired full control of Gyrtna on 16 September 1992, a two-year period from that date would have been acceptable. This is consistent with its decision in Scully/Tyrrell [2].

9. The Authority, however, generally considers that a non-compete clause in the event of a sale of business, where a transfer of goodwill rather than technical know-how is concerned, should be limited to two years from the date of completion. It does not believe that an extension of such limits would generally be acceptable by virtue of the fact that the acquisition of the business takes place in stages over a period of time. In particular it would be concerned that such an arrangement might be regarded as a means of extending the duration of non-compete clauses beyond the period which the Authority would normally consider necessary to secure the transfer of the goodwill. The Authority is satisfied that this was not the object of the present agreement. The parties have pointed out that the non-compete clause will expire on 31 July 1994 and that this is less than two years from the time of the acquisition of the balance of the shares. As it is satisfied that it was not an artificial arrangement to extend the duration of the non-compete clause the Authority does not consider that it has the object or effect of preventing, restricting or distorting competition.

10. In the Authority's opinion, Food Industries and Norish are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition of Gyrtna constitute an agreement between undertakings. In the Authority's opinion, the arrangements do not have, as their object or effect, the prevention, restriction or distortion of competition. The agreement of 1 May 1989 between Food Industries plc and Norish plc, for the purchase and sale of shares in Gyrtna Limited, does not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

11. The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement between Food Industries plc and Norish plc, for the purchase and sale of shares in Gyrtna Limited (CA/672/92E), notified on 30 September 1992 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

20 October 1993