Irish Competition Authority Decisions

1. A deed of covenant between Irish Life Assurance plc (Irish Life) and Chemical International Finance Ltd. (CIF), containing a number of non-compete clauses, entered into pursuant to a sale of business agreement, was notified to the Competition Authority on 2 March 1993. The notification requested a certificate, or in the event of a refusal by the Authority to grant a certificate, a licence.

2. The notification relates to a deed of covenant dated 1 January 1993, between Irish Life and CIF. The covenant was entered into pursuant to an agreement by CIF to acquire the entire issued share capital of three subsidiary companies (the companies) from Irish Life. The companies in question are, Fund Administration, Custody and Trustee Services Limited (´FACTS'), Irish Life International Investment Management Limited, (´ILIML'), and Irish Life Investment Fund Managers Limited, (´ILIFML'). The covenant contains a number of non-compete covenants given by Irish Life as part of the sale of business arrangement.

3. CIF is a wholly owned subsidiary of Chemical Banking Corporation, a US bank. Chemical and its subsidiaries provide financial services both in the US and internationally. Chemical Banking Corporation shares are quoted on the New York and London stock exchanges.

4. Irish Life is a company with shares quoted on the London stock exchange. It is the largest provider of life assurance in Ireland.

5. The companies which are being acquired by CIF provide a range of services to investment businesses located within the International Financial Services Centre, (IFSC). These services fall into four broad categories:

(i) Fund administration services;

(ii) Custody services;

(iii) Financial and administrative services;

(iv) Trustee services.

These services include a wide range of activities such as fund accounting, dividend collection, shareholder registration, calculation of brokers' commissions, settlement of purchases and sales of stock, preparation of interim and final fund and management accounts and of reports to regulators, acting as company secretary and arranging board meetings. The market is that for the provision of such services to firms operating in the IFSC. Such services are provided on a global basis by firms located in different financial centres throughout the world.

6. The notification relates to a deed of covenant entered into pursuant to an agreement for the sale of the companies by Irish Life to CIF. The deed of covenant contains a number of non-compete provisions. These are contained in clause 2.1 of the deed which provides as follows.

´Irish Life covenants and undertakes with Chemical and its successors in title in relation to the Shares as trustee for itself and each of the Companies that:-

(A) for the period of two years after Completion Irish Life will not either on its own behalf or in conjunction with or on behalf of any person, firm or company carry on or be engaged or interested in carrying on the businesses of providing securities custody, trustee, settlement, clearing, valuation, administration or back office services or registrar services other than to existing funds or new funds to which Irish Life are the principal sponsor (and other than as a holder of shares or debentures listed on The Stock Exchange or dealt in on the Unlisted Securities Market) within the European Community (as constituted from time to time);

(B) for the period of two years after Completion Irish Life will not either on its own behalf or in conjunction with or on behalf of any person, firm or company solicit or endeavour to solicit any Existing Client of the Company for the purposes of providing such client with such services as are provided or are capable of being provided to an Existing Client by any Company;

(C) for the period of two years after Completion Irish Life will not either on its own behalf or in conjunction with or on behalf of any person, firm or company solicit or entice away from any of the Companies any officer, manager or servant whether or not such person would commit a breach of his contract of employment by reason of leaving service;

(D) Irish Life shall procure that no company owned or controlled by Irish Life (and insofar as Irish Life is able to ensure the same none of its subsidiaries or associated companies) shall act in such a way as would be in contravention of the obligations contained in this paragraph if Irish Life were itself to so act.'

7. The parties have argued that restrictions on the vendor of the kind contained in the deed of covenant entered into pursuant to a sale of business have been regarded as acceptable in competition law in other jurisdictions. They also referred to a number of previous decisions in which the Authority had certified that non-compete clauses in the case of a sale of business did not offend against section 4(1), provided they were limited in terms of duration, scope and subject matter to what was necessary to secure the transfer of any goodwill attaching to the business being sold, to support their request for a certificate. [1] They pointed out that in Nallen/O'Toole and Phil Fortune/Budget Travel, the Authority had indicated that a period of two years would normally, in its view, suffice to ensure the transfer of such goodwill. In addition they referred to the fact that in ACT/Kindle and Phil Fortune/Budget Travel the Authority had accepted a restriction which applied to no specific geographical area, given the nature of the businesses involved. They argued that as the market in which the businesses being sold was global, a similar unspecified geographical restriction was justified in this instance. They also submitted that the restrictions were confined to the businesses carried on by the companies being sold and thus were acceptable in terms of subject matter.

8. 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.'

9. 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.' The parties to the present agreement are Irish Life and CIF. They are both corporate bodies engaged in the provision of goods and services for gain and are therefore undertakings within the meaning of the Act.

10. The present arrangements therefore constitute an agreement between undertakings whereby Irish Life has agreed not to compete in certain types of business for a period of two years, pursuant to an agreement to sell companies engaged in such lines of business to CIF. The Authority has previously stated its views on non-compete provisions in sale of business agreements in a number of previous decisions. It does not therefore propose to restate at length its views in the present decision.

11. The present notification differs from most of those previously considered by the Authority as only the deed of covenant incorporating the non-compete arrangements was specifically notified. In its previous decisions the Authority has concluded that non-compete provisions of the kind contained in the present notified agreement do not offend against section 4(1) where they are essential to the sale of a business. Were they not part of an overall sale of business arrangement, such an agreement not to compete would offend against section 4(1). Consequently the agreement notified cannot be considered purely in isolation but must be regarded as part of the broader sale of business arrangement. The Authority indicated in Scully/Tyrrell [2] that a series of related agreements may be regarded as a single agreement.

12. The Authority has stated on a number of occasions that agreements for the sale of a business are not automatically outside the scope of Section 4(1) of the Competition Act. It would, however, agree with the views expressed by the EC Commission in PPG/Mecaniver that, in the absence of a risk of co-ordination of competitive behaviour,

´The sale constituting the mere transfer of a business [did] not in itself and in the absence of any indications to the contrary give rise to any restriction of competition and as such did not fall within the scope of Article 85(1).' [3]

The Authority believes that the agreement notified is part of an arrangement for the transfer of ownership of businesses and, in the absence of any indication to the contrary, does not believe that such an arrangement offends against section 4(1).

13. As noted by the parties, the Authority has, in a number of decisions, indicated that in the case of a sale of business a restriction on the vendor competing with the business transferred does not offend against section 4(1), provided it does not exceed what is necessary to secure the transfer of any goodwill involved, in terms of its duration, geographic coverage and subject matter. It has also stated on several occasions that it generally considers a period of two years sufficient to ensure the transfer of goodwill. The present arrangement clearly meets the criteria set out in those earlier decisions. The restriction on Irish Life is for a period of two years and is confined to the businesses in which the companies being sold are engaged. No geographic area is specified. The Authority is satisfied that firms located outside of the State can and do provide such services to firms operating in the IFSC. Consequently if the restriction applied only to a specific geographic area, this would not suffice to prevent Irish Life competing in the market and retaining the goodwill of the businesses which now properly belongs to the purchaser. In sum the notified arrangements do not, in the Authority's opinion, offend against section 4(1).

14. 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 deed of covenant between Chemical International Finance Limited and Irish Life Assurance plc, entered into pursuant to Chemical International

Finance having purchased certain businesses from Irish Life, (notification no. CA/10/93), notified on 2 March 1993 under Section 7(1), does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

29 April 1993

1.Competition Authority decision No.1, Nallen/O'Toole (Belmullet), (CA/8,91, 2 April 1992; No.3, Athlone Travel Ltd/Michael Stein Travel Ltd., (CA/12/92), 4 June 1992: No. 8, ACT Group plc/Kindle Group Ltd., (CA/9/91), 4 September 1992; and No 9 Phil Fortune/Budget Travel Ltd., (CA/1/92), 14 September 1992.

3. Case no. 85/78/EEC, OJ L35/54, 7.2.85.