Irish Competition Authority Decisions

1. An agreement between Irish Nurseries Limited and Negley Groom (the vendors), and Uniplumo (Ireland) Limited (the purchaser) for the sale of the entire share capital of Give Joy Limited to Uniplumo (Ireland) Limited was notified to the Competition Authority on 30 September 1992, with a request for a certificate, or, in the event of a refusal to issue a certificate, a licence.

2. The notification concerns an agreement, dated 20 February 1991, for the sale of the entire issued share capital of Give Joy Limited to the purchaser. The agreement contained a number of non-compete clauses.

3. Irish Nurseries Limited is a holding company, incorporated in the State, which operates as a wholesale fruit merchants. A liquidator was appointed to the company in January 1994. Give Joy Limited was, at the time of the agreement, a subsidiary of Irish Nurseries Limited and operated as a nursery and a flower and pot plant distributor. Negley Groom is a nurseryman and a holder of the controlling interest in Irish Nurseries Limited. Connolly Kelly & Co Limited is a subsidiary of Irish Nurseries, and is involved in the business of selling fruit and plants in the Dublin fruit market. It also delivers plants, by van to locations within the greater Dublin area and by train to locations outside Dublin. Pot Plants Limited is also a subsidiary of Irish Nurseries Limited and was involved in the business of growing plants in glasshouses. Uniplumo (Ireland) Limited is a limited liability company, having its registered office at Kenmare, Co. Kerry, and is in the business of pot plant and cut flower distribution, mainly to multiples.

4. The notification relates to an agreement made in February 1991 for the sale of the entire share capital of Give Joy Limited to Uniplumo (Ireland) Limited. Clause 9.01 of the agreement prevented Connolly Kelly, for a period of three years from completion of the agreement, from selling or distributing potted plants other than by means of three vans within a twenty mile radius of Dublin, or, other than by rail (except in the case of a rail strike) throughout the country. They were also prevented, for the same period from soliciting any of the multiple customers of Give Joy or the purchaser, which were not currently serviced by Connolly Kelly or from marketing or distributing potted plants from any location other than from the bank in Dublin fruit market or its premises in the Corporation Fruit Market, Dublin 7. Clause 9.04 prevented the vendor, for a period of three years from completion, from using its Kimmage premises for growing, distributing or marketing potted plants which were not second-quality. Pot Plants was prevented from supplying pot plants to anybody other than Connolly Kelly or the purchaser. However, the vendor and/or its subsidiaries were permitted to sell second quality plants to third parties provided the sales of such plants did not exceed £50,000 p.a. The vendor was prevented, for three years from completion, from selling its Kimmage premises, except in the event that it would not be used for the purposes of growing, distributing, selling or marketing plants for three years. Clause 9.06 prevented the vendor and its associated companies from soliciting any employees of Give Joy or its associated companies for three years from completion of the agreement.

5. The Authority communicated its concern regarding the non-compete clauses in a letter to the parties, dated 15 July, 1993. However, no reply was received from the parties concerned.

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 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 engaged for gain in the production, supply or distribution of goods or the provision of a service." Irish Nurseries Limited was a corporate body engaged for gain. At the time of the agreement Irish Nurseries and Negley Groom were the beneficial owners of Give Joy which operated as a nursery, engaged for gain in flower and pot plant distribution. Uniplumo (Ireland) Limited is a corporate body which is also engaged for gain in the business of pot plant and cut flower distribution. Therefore, they were undertakings. Consequently the notified arrangements constituted an agreement between undertakings.

8. As the sale of business agreement 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. In the Authority's view, the prohibition under 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]. The sale element of the agreement was discharged and the property which was the subject of the agreement had been transferred prior to commencement of the Act, consequently, that aspect of the arrangements does not come within the scope of section 4(1).

9. Clause 9.01 provided that Connolly Kelly could not, for a period of three years from completion, distribute or sell potted plants other than by means of three vans within a twenty mile radius of Dublin or, other than by train throughout the country. They were also prevented, for the same period, from marketing or distributing potted plants from any location other than its premises in Corporation Fruit market, Dublin 7. Similarly, in clause 9.04 the vendor was prevented, for a period of three years, from using its Kimmage premises for growing, distributing or marketing potted plants which were not second-quality. Pot Plants was prevented from supplying anybody other than Connolly Kelly or the purchaser. The Authority has given its view on non-compete clauses in the sale of business agreements in a number of cases. In Nallen/O' Toole the Authority stated that "such a clause is essential in the sale of a business for the transfer of the goodwill of the business to the purchaser" [2]. In general the Authority considers that a period of two years is adequate for such purposes. This view was expressed by the Authority in General Semiconductor and has been reiterated on a number of occasions subsequently [3]. Connolly Kelly were not absolutely prevented from competing as they could use a small number of vans to distribute plants in Dublin and could also sell nationwide provided they shipped plants by train. In addition they could still operate from the premises in the corporation fruit market in Dublin 7. Pot Plants could still supply plants to Connolly Kelly or the purchaser. In the Authority's opinion the period of three years did not offend against Section 4(1) because the restriction on the vendor competing was not absolute. In addition as Irish Nurseries went into liquidation before the three years expired, the question of restricting competition no longer arises. Similarly, the restriction for three years on soliciting the multiple customers of Give Joy or of the purchaser and on soliciting employees of the company or its subsidiaries did not have the effect of preventing, restricting, or distorting competition since the vendors and Connolly Kelly were able to compete in the market and therefore, did not offend against Section 4(1).

10. The restriction on the vendor selling the Kimmage premises, except for use other than as a business involving the growing, sale, distribution or marketing of potted plants does not, in the Authority's opinion, offend against section 4(1). In Fuel Distributors/Enright, a similar restriction prevented Mr Enright using the premises he had bought for the purposes of a solid fuel business [4]. The Authority stated that if Mr Enright wished to become involved in the solid fuel business, he could do so in any other premises in the vicinity or elsewhere in the State. Similarly, in the Authority's opinion the restriction did not prevent any other person engaging in the solid fuel business in any part of the state. The Authority believes that the restriction on selling the premises in this particular agreement is similar to that in the case of Fuel Distributors/Enright and therefore it does not offend against section 4(1).

11. In the Competition Authority's opinion, the agreement between Irish Nurseries Limited, Negley Groom, Give Joy Limited and Uniplumo Ireland Limited for the sale of the entire share capital of Give Joy Limited to Uniplumo (Ireland) Limited (notification no. CA/320/92E) notified on 30 September 1992, under Section 7(2), constitutes an agreement between undertakings. In the Authority's opinion, the restriction on Connolly Kelly competing with the company and soliciting customers and the restriction on the vendor competing, solicitng employees and selling its Kimmage premises in clause 9 of the arrangements, as notified, did not have, as their object or effect, the prevention, restriction or distortion of competition and did not offend against Section 4(1) during the period in which they operated.

12. 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 dated 20 February 1991, between Irish Nurseries Limited, Negley Groom and Uniplumo (Ireland) Limited for the sale of the entire share capital of Give Joy Limited to Uniplumo (Ireland) Limited (notification no. CA/320/92E), notified to the Competition Authority on 30 September 1992, under Section 7, did not offend against Section 4(1) of the Competition Act, 1991, during the period in which it operated.

Patrick Massey

Member

24 March 1994.