Irish Competition Authority Decisions

1. Arrangements for the acquisition of the entire issued share capital of VAT Refunders Limited (VRL) by Foreign Exchange Company of Ireland (FEI) from Rochglen Holdings Limited (Rochglen) were notified to the Competition Authority on 30 November, 1993. VRL owned 50% of the share capital of Cashback Limited (Cashback), the balance being owned by FEI. The notification requested a certificate, or in the event of a refusal by the Authority to grant a certificate, a licence.

2. Cashback was a joint venture which was owned 50/50 by FEI and VRL, the latter being a wholly owned subsidiary of Rochglen. The notification relates to an agreement, dated 30 July 1993, between Rochglen and FEI for the sale by Rochglen of the entire share capital of VRL to FEI. As part of the arrangements three former directors of Cashback and VRL, Mr. Aidan Daly, Mr. Gerard Barry and Mr. James Ward entered into non-compete covenants with FEI as did a company called VR Spideal Teoranta (VRST). Cashback is engaged in the business of obtaining VAT refunds on behalf of overseas visitors who purchase goods from retailers in Ireland and are entitled to a refund of the VAT paid on such goods.

3. FEI is a wholly owned subsidiary of Gainscove, a holding company with its registered offices in Killorglin Co. Kerry. FEI and its subsidiaries are trading companies. FEI is engaged in the provision of a wide range of services including inter alia the provision of Bureau de Change services, administration of the Prize Bonds Scheme on behalf of the National Treasury Management Agency (NTMA), data processing for Government bodies and overseas companies, acting as an agent for Western Union and software development.

4. Cashback is a limited company which obtains refunds for overseas visitors from non EU countries in respect of VAT paid on goods purchased by them within the State. Prior to 30 July 1993 the issued share capital of Cashback was owned 50/50 by VRL and FEI so that Cashback was in effect a joint venture between VRL and FEI. VRL was a wholly owned subsidiary of Rochglen. Mr. Aidan Daly, Mr. Gerard Barry and Mr. James Ward were directors of VRL and Cashback and are, along with certain other individuals, directors of Rochglen and VRST. VRST is a mirror image of Rochglen as regards shareholdings and directorships.

5. Cashback is engaged in the business of obtaining VAT refunds for overseas visitors from non EU countries in respect of VAT paid on goods purchased by them within the State. All visitors from non EU countries are entitled to a refund of VAT paid on goods purchased within the State upon leaving, provided the goods in question are shipped out of the State. Cashback provides refunds to such visitors in two ways. Customers may obtain a refund in cash from Cashback at either Shannon or Dublin Airport. Alternatively they can have a refund sent by mail in the event that they do not wish to wait at those airports to have their claim processed or they leave Ireland through some other port or land frontier crossing.

6. The relevant market is that for the service of providing VAT refunds to non EU visitors. Such visitors are entitled to VAT refunds on all goods bought within the State once they are shipped abroad. Such VAT refunds thus apply in respect of such goods bought in any retail outlet within the State. Some information on visitor numbers and expenditure by them is given in the table below. The total number of visitors to Ireland from non European countries in 1991 was 444,000. Expenditure by them on goods and services within the State was estimated to be £198m. A large part of expenditure by visitors would be on services such as accommodation and meals. Thus VAT refunds would only have been payable on a fraction of their total expenditure. There were 824,000 visitors from European countries other than the UK in 1991 and between them they spent an estimated £305m on goods and services within the State. While most of these visitors would have come from EU countries, a proportion would have come from other European countries so that VAT refunds would have been payable on some part of expenditure by that group. In 1992 there where 855,000 visitors from European countries other than the UK and 516,000 visitors from non European countries.

Europe North Other Europe North Other

(ex. UK) America (ex. UK) America

1988 398 401 82 122 159 35

1989 538 417 109 158 175 44

1990 731 434 118 246 164 46

1991 824 342 102 305 150 48

1992 855 405 111

Note: Expenditure figures exclude passenger fare receipts.

Source: CSO: Statistical Abstract and Irish Statistical Bulletin.

7. Cashback offers a service to all non EU visitors, so that it applies in respect of goods purchased in any retail outlet within the State. A number of larger retail outlets provide such a VAT refund service themselves. It is also open to such visitors to claim refunds directly from the Revenue Commissioners, although they might face certain difficulties in contacting the appropriate agencies, particularly if they have left the country. The notifying parties have stated that any new supplier of the service could in fact set up quite easily if they wished.

8. The arrangements relate to the sale by Rochglen of its shareholding in VRL to FEI. As VRL and FEI each owned 50% of the shares in Cashback, the arrangements effectively mean that FEI is acquiring full control of Cashback. The arrangements include a number of non-compete provisions. Specifically by virtue of clause 9 of the Share Purchase Agreement the vendor undertakes that neither it nor any members of the vendor's group will:

(1) At any time after the date of this agreement photocopy take use or disclose by any manner any secret or confidential information concerning the transactions or affairs or the business property or accounts or methods of finance of the Company or Associated Company or concerning any of its or their clients or customers and for the purposes of this sub-clause all customer lists client mailing lists and all other data bases of the Company and Associated Company shall be deemed to be secret and confidential.

(2) for a period of one year and six months after the date hereof without the prior written consent of the Purchaser either on its own account or for or with any person firm or company directly or indirectly carry on or be engaged concerned or otherwise interested in any business company or concern which competes or is likely to compete with the Business in the Territory,

(3) at any time during the period of one year and six months after the date hereof knowingly and wilfully do anything which is prejudicial to the interests of the Business in the Territory.'

The Business is that carried on by Cashback and the Territory is defined as the State.

9. As part of the arrangements Mr. Aidan Daly, Mr. Gerard Barry and Mr. James Ward, who were former directors of Cashback and VRL, also entered into covenants with the purchaser not to compete with the business of Cashback. They have each given undertakings identical to those set above. In addition they each undertook not to:

- provide any technical or other assistance in relation to

the business to any person engaged or to be engaged in the business;

- solicit the custom of any person who within the 12 months prior to the date of signing was a customer or client of Cashback in relation to the business;

- deal with any person who within the 12 months prior to the date of signing was a customer or client of Cashback in relation to the business and with whom they had had dealings in that connection;

- solicit or entice away or endeavour to entice away any employee of VRL or Cashback;

for a period of 18 months from completion. In addition they undertook not to use the name Cashback or its logo at any time. Similar undertakings were given by VRST.

10. FEI submitted that the duration and extent of the arrangements were essential to secure the transfer of the goodwill in Cashback's business to FEI and that they did not involve any prevention, restriction or distortion of competition other than those necessary to permit the full transfer of ownership of the business and the goodwill associated therewith to FEI, bearing in mind the confidential nature of the business information available to Rochglen and the resigning directors and the ease of entry into the market.

11. 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.'

12. 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 arrangement are FEI, Rochglen, VRST, Cashback and Messrs. Aidan Daly, Gerard Barry and James Ward. FEI, Rochglen and VRST are corporate bodies engaged in the provision of goods and services for gain and are therefore undertakings within the meaning of the Act. Messrs. Aidan Daly, Gerard Barry and James Ward are also undertakings by virtue of the fact that they own and control certain undertakings and are therefore engaged for gain in the provision of services [1]. The share purchase agreement is therefore an agreement between undertakings, namely; FEI and Rochglen. The non-compete covenants entered into by VRST and Messrs. Daly, Barry and Ward with Cashback and FEI are ancillary to the share purchase agreement [2].

13. Under the agreement FEI has purchased the entire shareholding in VRL from Rochglen, and thereby in fact acquired complete control of the business of Cashback which had previously been jointly owned by FEI and VRL. In the Authority's opinion the acquisition by FEI of complete control of Cashback will have no effect on competition in the relevant market. The number of competitors in the market will be unchanged by the transaction as will the degree of market concentration. As far as the Authority is aware it is relatively easy for new firms to enter this market. Thus, in the Authority's opinion the share acquisition does not offend against section 4(1).

14. The Authority has stated in a number of decisions that a restriction on a Vendor competing with the Purchaser of a business may be necessary to protect the goodwill of the business being sold and where such a restriction does not exceed what is necessary for the protection of that goodwill in terms of its duration, geographic coverage and subject matter, it does not offend against Section 4(1). In General Semiconductor, the Authority indicated that, having had an opportunity to consider a number of such agreements, it would generally consider a non-competition clause exceeding two years in a sale of business agreement to offend against Section 4(1) [3]. It has subsequently restated this view on several occasions. It has also indicated that similar considerations apply in respect of restrictions on soliciting employees of a business being sold [4]. In this instance the restrictions on Rochglen, VRST and Messrs. Daly, Barry and Ward competing with Cashback are for only 18 months from the date of completion. Thus the Authority is satisfied that they do not exceed what is necessary to secure the transfer of the goodwill of the business to the purchaser and they do not therefore offend against section 4(1).

15. In the Authority's opinion, FEI, Rochglen, VRST, Cashback, Mr. Aidan Daly, Mr. Gerard Barry and Mr. James Ward are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition by FEI of 50% of the share capital of VRL and the associated non-compete arrangements, constitute an agreement between undertakings. The Authority believes that the restrictions in the agreement are no more than is necessary to secure the transfer of the goodwill of the business to FEI. The agreement of 30 September 1993 for the acquisition of 50% of the shares of VRL by FEI between Foreign Exchange Company of Ireland and Rochglen Holdings Ltd. and the associated covenants entered into by VR Spideal Teoranta and Messrs. Aidan Daly, Gerard Barry and James Ward, do not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

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 of 30 July 1993 between Foreign Exchange Company of Ireland and Rochglen Holdings Ltd. for the acquisition of 100% of the share capital of VAT Refunders Limited by Foreign Exchange Company of Ireland and the related non-competition covenants between Messrs. Aidan Daly, Gerard Barry, James Ward, VR Spideal Teoranta and Cashback and Foreign Exchange Company of Ireland (notification no. CA/64/93), notified on 30 November 1993 under Section 7, do not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

20 January 1994.