Irish Competition Authority Decisions

1. Arrangements for the acquisition of the entire issued share capital of NEM Insurance (Ireland) Ltd. by AGF-Irish Life Holdings plc (AGFILH) from AGF International were notified to the Competition Authority on 8 April, 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 an agreement between AGFILH and AGF International whereby AGFILH would acquire the entire issued share capital of NEM from AGF International. The arrangements were notified to the Minister for Industry and Commerce under the Mergers Act and were approved by him on 31 May 1993. There are no restrictive clauses included in the notified agreement.

3. The parties to the agreement are AGFILH and AGF International. AGFILH is a public limited company registered in Ireland. It is an investment holding company with no full time employees. 66% of the shares in AGFILH are owned by AGF Holdings Ireland which is in turn owned by AGF International, a French company. AGF International is itself a wholly owned subsidiary of Assurances Generales de France Societe Centrale and is the holding company of all overseas subsidiaries in the Assurances Generales de France Group. AGF UK is a wholly-owned subsidiary of AGF International and is the holding company for the shares of a number of UK insurance companies. AGF Insurance Limited, a subsidiary of AGF UK, acquired the business of National Employers Mutual General Insurance Association Limited (NEM UK) in 1990. At that time NEM UK owned 100% of the issued share capital of NEM Ireland. Subsequent to the acquisition of NEM UK's business by the AGF UK Group, ownership of the share capital of NEM Ireland was transferred from NEM UK to AGF UK. Ownership of the share capital of NEM Ireland was subsequently transferred to AGF International on 21 December 1992.

4. NEM Ireland is engaged in the non-life insurance business in Ireland. Two wholly owned subsidiaries of AGFILH, namely ICI and Church and General, specialise in particular types of non-life insurance. The relevant market is the market for non-life insurance services throughout the State. Information on the firms involved and the market shares held by various firms is published by the Department of Enterprise and Employment in the Insurance Annual Report or ´Blue Book'.

5. The present decision relates to an agreement between AGFILH and AGF International, whereby AGFILH has agreed to purchase the entire issued share capital of NEM Ireland from AGF UK. The agreement contains no non-compete clauses or any clauses other than those necessary to secure the transfer of shares in NEM Ireland to AGFILH.

6. The parties have argued that they are all members of the AGF Group and constitute a single undertaking. They have stated that the arrangements do not have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services within the State or any part thereof. They have stated that the arrangements are part of an internal restructuring of AGF International group activities and that consumers are under no obligation to transfer business from NEM Ireland to the AGFILH Group. They went on to state that the arrangements should enable the AGFILH Group to offer more efficient services to NEM Ireland policyholders by avoiding wasteful duplication of resources and by reducing unnecessary costs.

7. The parties also pointed out that while NEM Ireland was not presently a subsidiary of AGFILH, in reality it was a member of the AGF Group and subject to the common control (management) and ownership of AGF International. Consequently it was argued that the arrangements merely involved the reallocation of functions within the AGF Group from one arm of the organisation to another arm of that organisation. They cited the Authority's previous decision in AGF/Irish Life in support of this view. [1]

8. The parties claimed that AGF UK decided, following a review of its activities, to rationalise its business and, as a result, to terminate the underwriting activities of NEM Ireland. The notified arrangements allow AGFILH to take over the ´run off' of the NEM Ireland business, to offer renewal terms to NEM Ireland policyholders through its existing Irish subsidiaries, and to give secure permanent employment to a significant number of NEM Ireland employees. The agreement indicates, however, that only a small number of the staff of NEM have been retained.

9. 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'.

10. The present notification concerns arrangements involving AGFILH and AGF International. 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.' Each of the parties to the present agreement is a corporate body and is engaged for gain in the provision of services, in particular insurance services, through subsidiary firms which they control, and are therefore undertakings within the meaning of Section 3 of the Act. [2]

11. The arrangements constitute an agreement between undertakings. The essential issue in this case, however, is the fact that AGFILH and AGF International are all part of the AGF Group. 66% of AGFILH is owned by a subsidiary of AGF International. The Authority has already indicated in a previous decision involving AGFILH that it did not consider that arrangements between a parent company and its subsidiaries offended against Section 4 (1) of the Act because:

´(i) .......wholly owned subsidiaries of the same holding company are not independent undertakings but are really separate arms of the same organisation and are not therefore in competition with each other;

(ii) The proposed arrangements merely involve a reallocation of functions within the group.' [3]

12. The Authority subsequently restated its views on parent subsidiary agreements in PRS/IMRO [4]. The Authority believes therefore, that it has clearly set out its views on the position of parent/subsidiary agreements with respect to section 4(1) of the Competition Act in those previous decisions. The Authority emphasises the point, made in its decision in Firestone, that:

´the prohibition in Section 4(1) relates only to agreements between undertakings ´which have as their object or effect the prevention, restriction or distortion of competition within the State or any part of the State'....Similarly, in the Authority's view, every agreement between undertakings is not notifiable under Sections 7(1) and 7(2), only those of a kind described in Section 4(1) [5].'

13. The Authority's view in AGF1 was in accord with a number of decisions under Article 85(1) of the Treaty of Rome on which section 4(1) is based. For example, in the Centrafarm case the Court ruled that:

´Article 85, however, is not concerned with agreements or concerted practices between undertakings belonging to the same concern and having the status of parent and subsidiary, if the undertakings form an economic unit within which the subsidiary has no real freedom to determine its course of action on the market, and if the agreements or practices are concerned merely with the internal allocation of tasks as between the undertakings' [6].

14. The agreement effectively involves a reorganisation by AGF International of the activities of its subsidiary companies with AGFILH acquiring an Irish based subsidiary of AGF International. The test to be applied in this instance therefore is whether the parties which are subsidiaries of a single parent form an economic unit within which they have no real freedom to determine their course of action on the market. AGFILH is not a wholly owned subsidiary of AGF International. The minority shareholders may enjoy some degree of de facto control and this could give AGFILH some degree of autonomy. In the Authority's view the reality is that AGF International is in a position to ensure that its subsidiaries confine their activities to the UK market and that AGFILH should confine itself to the Irish non-life insurance market. In the Authority's view, there is no question of the members of the group having sufficient commercial autonomy for them to decide to compete with one another in their respective markets. Consequently the Authority has come to the same conclusion as in AGF1 and PRS/IMRO that such an arrangement does not prevent, restrict or distort competition.

15. AGFILH and AGF International are undertakings within the meaning of Section 3 of the Competition Act and the arrangements notified constitute an agreement which applies within the State. The agreement involve arrangements between a parent company and its subsidiaries relating to the internal allocation of tasks within the group and does not therefore offend against section 4(1) of the Competition Act.

16. 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 AGF-Irish Life Holdings plc and AGF International, (CA/12/92), for the acquisition of the issued share capital of NEM Insurance (Ireland) Ltd. by AGF - Irish Life Holdings plc from AGF International, notified on 8 April 1993, under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey,

Member,

9 June 1993.