Irish Competition Authority Decisions

1. An agreement between First National Bakery Company Limited (First National) and Ann Smith, Stanhope Cussen, Keith Thompson and Hugh McKeown (the Vendors) for the purchase and sale of Clianthus Limited (Clianthus) 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 30 March 1990 between First National and the vendors whereby the vendors agreed to sell the entire share capital of Clianthus to First National. The agreement also contains a non-compete provision.

3. First National and Clianthus are limited companies incorporated in the State. Both companies are engaged for gain in the manufacture and distribution of bakery products. At the time of the agreement, the vendors were joint beneficial owners of Clianthus.

4. The notification relates to an agreement, dated 30 March 1990, for the sale of the entire share capital of Clianthus to First National. Clauses 6.01(a) and (b) of the agreement prevented the vendors from becoming involved in a competing business for a period of five years from the date of completion. In addition, clause 6.01(d) prevented the vendors, for the same period, from soliciting the custom of any party which had been a customer of Clianthus in the five years immediately preceding the date of the agreement. Under the terms of clause 6.01(e), the vendors were prevented from soliciting the staff of Clianthus for the same period. However, clause 6.01(f) of the agreement provided that the individual vendors could continue to participate in other specified business activities.

5. Following discussions with the Authority, First National indicated, by letters dated 9 August and 12 October 1993, that they would not seek to rely on clauses 6.01(a), (b), (d) and (e) after 1 October 1993.

6. 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'.

7. 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 First National and Clianthus are corporate bodies engaged for gain and are, therefore, undertakings. At the time of the agreement, the vendors were the joint beneficial owners of Clianthus and, therefore, are also undertakings.

8. As the sale of business was completed prior to 1 October, 1991, the date on which the Competition Act came into force, this element of the agreement had been discharged by performance before the Act commenced. The property which was the subject of the agreement had been transferred. 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).

9. The agreement contained a five year non-compete clause. In the Authority's opinion, this exceeded what was necessary to secure the transfer of the goodwill of the business and this offended against section 4(1). As the duration of the non-compete clause has now been reduced, the Authority considers that it no longer offends against section 4(1).

10. In the Authority's opinion, First National and the vendors are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the purchase and sale of Clianthus constitute an agreement between undertakings. In the Authority's opinion, the arrangements, as amended, do not have, as their object or effect, the prevention, restriction or distortion of competition. The agreement of 30 March 1990 between First National and the Vendors for the purchase and sale of Clianthus, as amended by letters dated 9 August 1993 and 12 October 1993, 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 First National Bakery Limited and Ann Smith, Stanhope Cussen, Keith Thompson and Hugh McKeown for the purchase and sale of Clianthus Limited (notification no. CA/693/92E), notified on 30 September 1992 under Section 7 and amended by the undertaking given by First National Bakery Limited in its letters of 9 August and 12 October 1993, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

18 November 1993