Irish Competition Authority Decisions

1. An agreement between IAWS Group plc (IAWS), Mr. Sean P. Deignan and Mr. John F. Deignan (the Deignans) and Brookline Limited (Brookline) was notified to the Competition Authority on 30 September 1992. The agreement involved a shareholding arrangement between IAWS (the Majority shareholder) and the Deignans (the minority shareholders) in Brookline which subsequently changed its name to Shamrock Foods Ltd. (Shamrock). Under the agreement IAWS had an option to buy out the minority shareholders, and it did so on 30 October 1992. The agreement included non compete provisions. The notification requested a certificate or, in the event of a certificate being refused, a licence. The arrangements had been notified to the Minister for Industry and Commerce under the Mergers Acts and no Order was made in respect of the acquisition.

2. The notification relates to an agreement dated 13 October 1989 between IAWS and the Deignans. It arose out of the acquisition by Brookline from the Whitworth Group of its 75% interest in Shamrock Foods and 100% interest in Shamrock Distributors. The latter agreement was the subject of a separate decision by the Authority [1]. Effectively IAWS acquired a 74% shareholding in Brookline through the issue of new shares, the company having previously been wholly owned by the Deignans. The agreement includes some non-compete provisions.

3. IAWS is a public limited company quoted on the Irish Stock Exchange. It has, through its subsidiaries, been a major supplier of materials and services to the Irish agricultural and food industries for over 90 years. The group's principal operating businesses consist of fish processing, fertilisers, animal feed, energy products and food. Its turnover for the year ended 31 July 1993 was £402m. Brookline is a limited company registered in the State. The Deignans owned the entire issued share capital of Brookline prior to the completion of the notified agreement.

4. The notification relates to a shareholding agreement, dated 13 October 1989, which was concluded following the acquisition by Brookline of Whitworth's interest in Shamrock Foods and Shamrock Distributors. IAWS agreed to subscribe for 74 shares in the capital of the Company; this effectively represented 74% of the issued share capital following the agreement. Under the terms of the agreement the Deignans were entitled to sit on the board of Brookline. In addition there were limits to the company's power to incur capital expenditures above certain limits, pay dividends or issue additional shares without the consent of the Deignans as minority shareholders.

5. Under Clause 5 IAWS could require either or both of the Deignans to sell all or part of their shares to it in certain circumstances, e.g. if any of them were adjudicated bankrupt. Clause 6 provided that either or both of the Deignans could require IAWS to purchase all or part of their shares upon delivering written notice in the event that any of the circumstances set out in clause 5 occurred.

6. Clause 9.01 of the agreement provided that the Deignans would not for so long as the agreement remained in force and for 18 months after they ceased to be shareholders in Brookline either;

(i) become involved in any way with any entity engaged in the same business as Brookline;

(ii) solicit customers of the business either on their own account or on behalf of anyone else;

(iii) solicit employees of the company on their own account or on behalf of anyone else.

7. Clause 7 provided that IAWS could require either or both of the Deignans to sell all or part of their shares to it within 90 days of the publication of the accounts of Brookline for any of the financial periods ending 30 September in the years 1992 to 1999. Similarly the Deignans could require IAWS to purchase all or part of their shares in exactly the same circumstances. The Deignans sold their shareholding with effect from 1 August 1992 by means of an agreement dated 30 October 1992.

8. IAWS submitted detailed arguments in support of the issue of a certificate. These may be briefly summarised here. They argued that at the time of the agreement the parties had not anticipated the enacting of legislation prohibiting anti-competitive agreements. They argued that the agreement was not anti-competitive and that the restrictive provisions were reasonable and necessary in the circumstances for the protection of their legitimate business interests. They cited a number of Authority decisions in support of their arguments.

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. 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.' IAWS and Brookline are corporate bodies engaged for gain and are therefore undertakings. The Deignans were the owners of Brookline at the time of this agreement and they also were undertakings [2]. The notified arrangements constitute an agreement between undertakings.

11. Although described as a shareholding agreement, the arrangements were tantamount to a sale of business since they resulted in IAWS acquiring 74% of the issued share capital of the business with an option to acquire the remainder at a future date. As IAWS had acquired a majority shareholding in Brookline 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 acquired. 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 [3]. As the acquisition of the 74% shareholding was discharged prior to the commencement of the Act, that aspect of the arrangements does not come within the scope of Section 4(1). The purchase by a majority shareholder in a business of any or all of the remaining share capital of the business does not, in the Authority's view, have any impact on competition and hence does not offend against Section 4(1).

12. The restrictions on Brookline's ability to do certain things were included to protect the interests of the minority shareholders. The Authority has previously decided that restrictions of this type do not offend against Section 4(1) [4].

13. The agreement contains a non-compete clause for 18 months from the date on which the Deignans ceased to be shareholders in Brookline. The Authority has stated in Scully Tyrrell that, in the event of a sale of business where the vendors remain on as shareholders and/or employees of the business, a restriction on their competing with the business for so long as they remain as shareholders and employees and for two years after they cease to be shareholders does not offend against Section 4(1) [5]. As the restriction on competing in this instance was only for so long as the Deignans remained shareholders and for 18 months after they sold their shares, in the Authority's opinion, it did not offend against Section 4(1).

14. In the Authority's opinion, IAWS and the Deignans and Brookline are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition of 74% of the issued share capital of Brookline by IAWS constitutes an agreement between undertakings. The Authority believes that as the acquisition of Brookline was effectively completed prior to the commencement of the Competition Act, the agreement for the purchase of shares in Brookline does not come within the scope of Section 4(1) of the Act. The subsequent purchase of the minority shareholding by the exercise of the option contained in the agreement does not offend against Section 4(1). The non-compete clause was ancillary to the main agreement and did not offend against Section 4(1).

15. 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 IAWS Group plc, Brookline Ltd. and Mr. Sean P. Deignan and Mr. John F. Deignan for the acquisition by IAWS of 74% of the issued share capital of Brookline Ltd., and the subsequent acquisition of the remainder, (notification no. CA/692/92E), notified on 30 September 1992 under Section 7, did not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

24 March 1994.