Irish Competition Authority Decisions

1. An agreement between IAWS Group plc (IAWS), Dock Milling Limited (Dock), S. & A. G. Davis (Davis) and Katowice Limited (now Bolands Mills Ltd.) was notified to the Competition Authority on 30 September 1992. The agreement involved the establishment of a company called Katowice which would acquire the entire trade and fixed assets of several companies involved in the flour milling industry. IAWS subsequently acquired the shares held in Katowice by Dock and Davis by means of supplemental agreements. The agreement included non compete provisions. The notification requested a certificate or, in the event of a certificate being refused, a licence.

2. The notification relates to an agreement dated 29 January 1988 between IAWS, Dock, Davis and Katowice. The parties involved had previously either directly or through subsidiary companies been engaged in the business of flour milling and, by virtue of the notified agreement, established a company in which each of them would participate for the purpose of carrying on such business in the future. The agreement includes some non-compete provisions. It was notified to the Minister for Industry and Commerce under the terms of the Mergers Act (1978) and no order was made.

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. Dock, Davis and the then Bolands Mills, which was owned by IAWS, were each engaged in the business of flour milling prior to the conclusion of the agreement.

4. The notification relates to a shareholding agreement, dated 29 January 1988. At the time of the agreement Dock, Davis and the then Bolands Mills were competitors engaged in the business of flour milling at different locations within the State. Under the terms of the agreement they agreed to cease competing with one another and to establish a joint venture company called Katowice which in turn acquired the entire trade and fixed assets of the companies involved. In return they received shares in Bolands Mills. This resulted in IAWS Sales holding 70% of the shares in Bolands while Dock and Davis held 17% and 13% respectively. By means of supplemental agreements dated 12 July 1991, and 12 July 1992, IAWS subsequently acquired the shares held in Katowice by Dock and Davis. The agreement included non compete provisions.

5. By means of a separate agreement also dated 22 January 1988 it was agreed that Davis would sell and Katowice would purchase all of the trade goodwill, assets and undertakings (excluding debtors, certain creditors and certain specific assets as therein specified) of Davis. In addition Katowice agreed to take over all of the then existing employees of Davis to the extent that it would replace Davis from the date of the Agreement in the business of flour milling. Similar arrangements existed in respect of Dock. On 28 January 1988 Bolands Mills Ltd, a wholly owned subsidiary of IAWS, which had been carrying on the business of flour milling resolved to enter into voluntary liquidation. Katowice then entered into an agreement with the liquidator to acquire the business from the liquidator in return for the issue to IAWS of shares in Katowice.

6. Under clause 2 of the agreement IAWS, Dock and Davis, (collectively referred to as the covenantors), agreed that they would not during the period commencing on the date of the agreement and terminating two years after the date upon which they ceased to be shareholders in the company:

(i) in the Republic of Ireland and/or Northern Ireland directly or indirectly either on its own behalf or in conjunction with or on behalf of any other person, firm or company carry on any business in competition with the flour milling, flour trading and flour importation and baking businesses of the company, (apart from certain activities which were specifically excluded);

(ii) in relation to the business of the company either on their own behalf or in conjunction with or on behalf of any person firm or company, directly or indirectly solicit or endeavour to solicit or obtain the custom of any person firm company or corporation that is at any time during the specified period or in the 12 months prior to the agreement was a customer of the business or solicit or entice away any officers, manager or servant of the business. They also agreed to use every endeavour to ensure that their employees would also not do any of these things while they remained employed by them.

Dock also undertook that Mr. Niall Higgins should be bound by and perform each and every one of these obligations as if they had been undertakings expressly undertaken by him save that they would only apply for two years from the date of the agreement in his case i.e. to January 1990. The non-compete clauses expired on 12 July 1993 in the case of Dock and 12 July 1994 in the case of Davis.

7. 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 went no further than was necessary to protect the legitimate business interests of the parties. The referred to the Authority's decisions in Nallen/O'Toole [1] and Cambridge/Imari [2] together with the EC Commission decision in Reuter/BASF [3] in support of their arguments.

8. 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'.

9. 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, Dock and Davis were all corporate bodies engaged for gain and were therefore undertakings. The notified arrangements constitute an agreement between undertakings.

10. Although described as a shareholding agreement, the arrangements were in many respects akin to a sale of business since they resulted in IAWS acquiring 70% of the issued share capital of the newly established joint venture. It subsequently acquired the outstanding shares by means of two supplemental agreements, one of these was executed before 1 October 1991, the date on which the Competition Act came into force. The transactions whereby Katowice acquired the assets and goodwill of the businesses of Davis, Dock and Bolands Mills, had been discharged by performance before the Act commenced. The property which was the subject of the agreement had been transferred. 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 [4]. As the transfer of the assets was discharged prior to the commencement of the Act, that aspect of the arrangements does not come within the scope of Section 4(1).

11. The agreement contains a non-compete clause from the date of the establishment of the joint venture until two years after any shareholder disposed of its shares in the joint venture. The Authority has stated in a number of previous decisions that it believes that a restriction on competing with the business for a period is not anti-competitive provided it is for no longer than is necessary to secure the transfer of the goodwill of the business [5]. It has indicated that in general it considers a period of two years as adequate for this purpose. Such considerations also apply where a partner in a business disposes of his shareholding to the other partners [6]. The parties, in their notification, referred to the arrangements as a joint venture. VanBael and Bellis [7] point out that under EU competition law, in the case of a joint venture, non-compete restrictions which continue after the termination of the joint venture are regarded as infringements of Article 85(1) and have generally been refused an exemption. The Authority believes that the present arrangement is more akin to a sale of business or merger than a true joint venture. For this reason it considers that the two year restriction on the shareholders competing with the business after they cease to be shareholders does not offend against section 4(1).

12. In the Authority's opinion, IAWS, Dock Milling Limited, S. & A. G. Davis and Katowice Limited are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified shareholders agreement constitutes an agreement between undertakings. The Authority believes that, as the arrangements which resulted in the acquisition by Katowice of the flour milling businesses of the other three parties were effectively completed prior to the commencement of the Competition Act, that aspect of the agreement does not come within the scope of Section 4(1) of the Act. As this effectively gave IAWS control of 70% of Katowice, which it subsequently increased to 87% prior to the coming into force of the Act, the subsequent purchase of the minority shareholding did not offend against section 4(1). The non-compete provisions were ancillary to the main agreement and do not offend against section 4(1).

13. 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, Dock Milling Limited, S. & A. G. Davis and Katowice Limited, which resulted in the acquisition by Katowice of the flour milling businesses of the other three parties, (notification no. CA/690/92E), notified to the Competition Authority on 30 September 1992 under Section 7, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

14 June 1994

2. Competition Authority decision no. 24, 21 June 1993.

3. Case no. 76/743/EEC, OJ L254/40, 17.9.76

4. 'Notice in respect of Mergers and Takeovers which predate the Competition Act' - Iris Oifigiuil, 14 May 1993, p.367.

5. See for example, Decision No. 8 - ACT Group plc/Kindle Group Limited, 4 September 1992 and No. 10 - GI Corporation/General Semiconductor Industries Inc, 23 October 1992.

6. See Nallen/O'Toole.

7. I. Van Bael and J.F. Bellis, 'Competition Law of the EEC', 2nd edition at point 511.