Irish Competition Authority Decisions

1. Notification was made with a request for a certificate or, failing the issue of a certificate, a licence on 25 September 1992 by Mr. Patrick Flynn in respect of an agency agreement with Wardell Roberts plc.

2. The notification concerns an agreement dated 1 June 1983 under which Woodford Bourne Ltd appointed Mr. Patrick Flynn as its sole selling agent for wine and spirits in five south-eastern counties. On or about 31 May 1988, Woodford Bourne was acquired by Wardell Roberts plc, and the benefit and the obligations of Woodford Bourne were assigned by agreement of all parties to Wardell Roberts. Mr. Flynn is now therefore the sole selling agent for Wardell Roberts in the specified territory.

3. Wardell Roberts is an importer and wholesaler of wines and spirits and it distributes branded and private label food products. Mr. Flynn had previously been employed directly by Woodford Bourne for about ten years acting as Sales Manager dealing with much the same type of customers as at present. Due to a re-organisation he became an agent in wholesaling the principal's products to the principal's customers. These customers are mainly restaurants/hotels, off-licences and cash and carry outlets.

4. The products which are the subject of the notification are wines and spirits. The main competitors of Wardell Roberts are distributors such as Gilbeys, Grants, Dillons, Fitzgeralds and Barry/Fitzwilliam. Each distributor tends to have exclusive distribution agreements for different brands of wines and spirits, but these are generally in competition with each other.

5. Under the agreement, Mr. Flynn was appointed sole selling agent of the principal in the counties of Waterford, Wexford, Kilkenny, Tipperary and Carlow, with exclusive selling rights for the sale of all of the principal's brands of wines and spirits. The agent is required to use his best endeavours to promote and extend the sales of the goods, and he is paid a monthly commission on sales. So long as the agent continues to promote and market the goods in a sufficient and workmanlike manner, the agreement shall not be determined by either party. All distribution costs of goods delivered directly by the principal are to be borne by the principal, and the principal is also responsible for keeping accounts and records. The agent is responsible for a maximum of 10% of bad debts.

6. According to the notifying party, the price of the products is set by the principal, who also determines what credit facilities are afforded to customers. It was also stated that, as a matter of practice, the agent only sold wines and spirits stocked by the principal. In addition, it was explained that the agent kept stocks at a warehouse owned by him in Waterford city, although the ownership of the stocks remained with the principal. While distribution was the responsibility of the principal, the agent maintained a small stock of wine for emergency deliveries.

7. The principal argument put forward in favour of a certificate by Mr. Flynn was that, as an agent, he was not an independent trading entity separate and distinct from his principal. The agent, in economic terms, was part of the same undertaking as the principal, and no more than an auxiliary part of the principal's operation. Accordingly, the agreement between the parties was not an agreement between undertakings. The submission referred to the EC Notice of 1962 concerning commercial agents (OJ139, 24.12.1962, p. 2921). It was maintained that in this case the agent was no more than an intermediary as distinct from an independent trader. He was neither a purchaser from the principal nor a vendor to the customer and was not, therefore, an economic force in his own right. It was clear that, in both practice and as set out in the agreement, the financial risks in all transactions remained with the principal (except for the agent's liability for a maximum of 10% of bad debts, which, it was argued, was not an out-of pocket expense as such but rather a retrospective reduction in the agent's commission rate). The agent did not determine the selling price of the goods which was fixed by the principal and invoiced directly by the principal to the customer. While the agent carried a stock of products in his own premises, ownership of these stocks rested with the principal.

8. Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings 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.

9. Wardell Roberts and Mr. Flynn are engaged in the distribution of wines and spirits for gain, and they are therefore undertakings within the meaning of Section 3(1) of the Competition Act. The Authority does not accept the argument of Mr. Flynn that an agent is not an undertaking or that there is any EU precedent for this view. In particular, neither the 1962 Notice, nor its draft revision, states that an agent is not an undertaking, and this is not the reason for regarding an agreement between a principal and an agent as not being in breach of Article 85(1). The position is similar to that of a parent firm and a subsidiary where the EU Commission has held that both are undertakings even through a restrictive agreement between them may not infringe Article 85(1). A similar view has been taken by the Authority in its decision in AGF-Irish Life (Decision No. 2, 14 May 1992). The agency agreement is an agreement between undertakings. The relevant product markets are those for wines and spirits, and the relevant geographic market is the five specified counties, which are a part of the State.

10. Mr. Flynn is not an employee of Wardell Roberts, and there is no contract of employment or service between them. He is a self-employed contractor. At the same time, he does not purchase wines and spirits from Wardell Roberts for resale to customers. He sells these, not on his own account, but on behalf of Wardell Roberts. He does not pay for the products, and the stocks remain the property of Wardell Roberts until they are sold. Payments are made by customers to Wardell Roberts, and Mr. Flynn receives a commission, out of which he must pay his business expenses. Wardell Roberts determines the prices at which the products are sold. The relationship is an ongoing one, and has been in existence for more than ten years.

11. The Authority summarised the views of the EU Commission on commercial agency, and outlined its own opinion on the subject, in its decision on the Conoco consignee agreement (Decision No. 286, 25 February 1994). The Authority considers that a commercial agent is a self-employed intermediary between the principal and a purchaser or seller. The commercial agent concludes the sale or purchase of goods and services on behalf of the principal and a purchaser or seller, on a continuing basis. The commercial agent is an auxiliary organ, forming an integral part of the principal's business, and is bound to carry out the instructions of the principal, and his position in this respect is similar to that of an employee. Being integrated into the principal's business, the commercial agent can undertake no autonomous commercial behaviour, under the agreement, and certain restrictions on him are fundamental to the relationship. The Authority considers that profits or losses essentially accrue to the principal and not to the commercial agent.

12. The Authority considers that Mr. Flynn is a self-employed intermediary between Wardell Roberts and the purchasers of its wines and spirits. He concludes the sale of goods on behalf of Wardell Roberts on a continuing basis. He does not own the stocks, and resale prices are set by Wardell Roberts. While he accepts some risk in respect of bad debts, the profits and losses in respect of the transactions accrue to Wardell Roberts. The Authority considers that Mr. Flynn is an auxiliary organ, forming an integral part of Wardell Robert's distribution business, and it concludes that he can be considered to be a commercial agent.

13. The Authority considers that undertakings are entitled to decide how to operate their distribution systems, and, in particular to appoint commercial agents to sell their goods on their behalf. Since the commercial agent is an auxiliary organ, similar to an employee, the agreement between a principal and a commercial agent does not, in principle, offend against Section 4(1) of the Competition Act.

14. In the present case, the Authority has concluded that Mr. Flynn is a commercial agent. It considers that the agreement between Wardell Roberts and Mr. Flynn, insofar as it creates a relationship between the principal and a commercial agent, does not offend against Section 4(1).

15. Even though the basic arrangement of commercial agency might not offend against Section 4(1), certain clauses in the agreement might occasionally do so. The Authority recognises that there are certain features of commercial agency relationships which define and confirm the relationship, and are intrinsic to the commercial agency. Since the commercial agent is closer to being an employee than to being an independent trader, the Authority considers that certain restrictions may be imposed upon a commercial agent without offending against Section 4(1), whereas they would offend against Section 4(1) if they were imposed on an independent trader. In the Authority's opinion, none of the provisions in the notified agreement offend against Section 4(1).

16. In the Authority's opinion, Wardell Roberts and Mr. Flynn are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified agency agreement constitutes an agreement between undertakings. In the Authority's opinion, Mr. Flynn is a commercial agent of Wardell Roberts, and the arrangements do not have, as their object or effect, the prevention, restriction or distortion of competition. The notified agreement does not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

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 agency agreement between Wardell Roberts plc and Mr. Patrick Flynn (notification no. CA/120/92E), notified on 25 September 1992 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick M. Lyons

Chairman

7 April 1994