Irish Competition Authority Decisions

1. An agreement between Siuicre Eireann cpt (the purchaser), Messrs. Charles Lyons, Michael Tully, Thomas Keleghan and Charles Garavan and Talmino Ltd. (collectively the vendors), for the sale and purchase of the shares of Gladebrook Company Limited was notified to the Competition Authority on 30 September 1992 (notification no. CA/653/92E). As part of the arrangements Messrs. Lyons, Tully, Keleghan and Garavan entered into employment agreements with the purchaser. These agreements were also the subject of separate notifications (notification nos. CA/654, 655, 656 and 657/92E), which were also received on 30 September 1992. The agreements included various non compete provisions. The notifications requested a certificate or, in the event of a certificate being refused, a licence. Notice of intention to issue a certificate was published in the Irish Times on 13 May 1994. No submissions were received by the Authority.

2. The notifications relate to an agreement dated 8 February 1990 between Siuicre Eireann and the vendors for the purchase and sale of the shares in Gladebrook. The agreements included a number of non-compete provisions. After the Authority had expressed concern concerning the duration of such provisions, Greencore Group plc, on its behalf and on behalf of its affiliated companies undertook not to enforce those provisions after 31 March 1994.

3. Siuicre Eireann cpt is a limited company and a wholly owned subsidiary of Greencore Group plc. Greencore is one of the largest companies in the State with a turnover in the year to end September 1993 of £394m. It was incorporated in February 1991 as the vehicle for the privatisation of Siuicre Eireann. Siuicre Eireann is engaged inter alia in the production of sugar and other foodstuffs. Talmino Ltd is a private company incorporated in Jersey. The purchaser has stated that it is not aware of this company ever having carried on a trade or business in the State. The beneficial ownership of this company is the subject of a legal dispute. Talmino along with the other four vendors owned Gladebrook, a holding company which held 49 percent of the issued share capital of Sugar Distributors (Holdings) Ltd. (SDH). SDH was incorporated in 1974 as a joint venture between four sugar merchants and Siuicre Eireann. Prior to its acquisition by Gladebrook, part of the 49 percent shareholding was held by two of the vendors namely Messrs. Garavan and Keleghan. Gladebrook was established in December 1988 to acquire the 49 percent shareholding in SDH which became available as two of the then shareholders decided to sell their interests. Messrs. Garavan and Keleghan transferred their interest in SDH to Gladebrook in exchange for shares in Gladebrook and a cash payment in late 1988. The remaining 51 percent of the shares in SDH were owned by Siuicre.

4. Siuicre Eireann has stated that while it held 51 percent of the issued share capital of SDH it did not have effective management control of the company. They stated that SDH was effectively managed by four of the vendors, Messrs. Lyons, Tully, Keleghan and Garavan. Prior to the acquisition of Gladebrook in 1990, the management of SDH regarded it as being separately managed and independent of the purchaser. The purchaser did not control the board of directors and the agreement under which it acquired its 51 percent shareholding in the company contained specific provisions to ensure the independence of the SDH board and management. The notifying party also stated that the fact that SDH was effectively managed and controlled by these four vendors had been documented in a number of investigations carried out into the Gladebrook acquisition.

5. The notifications relate to arrangements dated 8 February 1990, for the sale of the vendors' shares in Gladebrook to Siuicre Eireann. The sale agreement included a number of non-compete provisions in clause 16.1 which stated that:

´Each of the Vendors undertakes to the Purchaser that:-

(a) He will not within the Relevant Territory during the Relevant Period carry on or be concerned directly or indirectly or be engaged, concerned or interested as principal, shareholder, partner, employee, agent or otherwise.....in any business or businesses competing with the business or businesses of any of the Group Companies as carried on at any time prior to the Completion Date.

(b) He will not within the Relevant Territory during the Relevant Period either on his own account or on behalf of any other person, firm or company directly or indirectly solicit, interfere with or endeavour to entice away from any of the Group Companies any person, firm or company who has been a client, customer or subscriber of any of the Group Companies during the two years immediately prior to Completion or who is in the habit of dealing with any of the Group Companies.

(c) He will not at any time hereafter either on his own account or on behalf of any other person, firm or company directly or indirectly endeavour to entice away any consultant, executive or employee from any of the Group Companies.'

The relevant territory is defined as the Republic of Ireland, Northern Ireland and Great Britain and the relevant period is defined as five years from the completion date.

6. The sale agreement also includes in Schedule 6 service contracts between Siuicre Eireann and Messrs. Lyons, Tully, Keleghan and Garavan. (As already pointed out these were also the subject of separate notifications). These provided that the individuals were to be employed by Siuicre Eireann for a period of 5 years, commencing on 1 January 1990 and expiring on 31 December 1995. Clause 3 of the service contracts imposed certain restrictions on Messrs. Lyons, Tully, Keleghan and Garavan. Clause 3(a) of the respective agreements required that each of them immediately cease (except in the course of his duties with SDH), all activities in connection with the buying, selling, importing, transporting or distribution of sugar and flour and should not, without the consent of the company, during the course of the agreement, be engaged, either directly or indirectly, in any trade, business or occupation, other than the business of the company. Clause 3(b) included provisions identical to those contained in clause 16.1(a), 16.1(b) and 16.1(c) of the sale agreement save that the relevant period was defined as the period of three years from the termination of the service agreement. Clause 12 provided that the individuals concerned would not disclose at any time, without the consent of the company, (a) any trade secrets or confidential information which the company obtained from any third party under an agreement including restrictions on disclosure and (b) any trade secrets or confidential information of any subsidiary of the company for such period as such company may reasonably require for the protection of its legitimate interests.

7. The service contracts of all four individuals were subsequently terminated on the dates set out below.

Mr. Lyons 15 March 1991;

Mr. Keleghan 30 June 1991;

Mr. Tully 6 September 1991.

Mr. Garavan 4 February 1992.

8. After the Authority expressed its concerns regarding the duration of the non-compete provisions in the various agreements, Greencore Group plc, indicated by letter dated 11 April 1994, that neither it nor any of its associated or affiliated companies would enforce or attempt to enforce the restrictive covenants contained in clause 16 of the notified share purchase agreement or the restrictive covenants contained in the four related service contracts after 31 March 1994. Greencore Group plc and its affiliated companies will continue to enforce the confidentiality provisions contained in the notified agreements.

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.' Siuicre Eireann and Gladebrook are corporate bodies engaged for gain and are therefore undertakings. Messrs. Lyons, Tully, Keleghan and Garavan jointly owned and controlled Gladebrook prior to the share purchase agreement and they are also undertakings. The share purchase agreement therefore constitutes an agreement between undertakings. The service agreements were an integral part of the overall share purchase agreement.

11. As the sale of business 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. 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. As the merger or sale element of the transaction was discharged prior to the commencement of the Act, that aspect of the arrangements does not come within the scope of Section 4(1).

12. The share purchase agreement contained a five year non-compete clause. In addition it contained a restriction of unlimited duration on enticing any person employed by the company to leave. As already stated in a number of previous decisions the Authority believes that a two-year non-compete provision is generally sufficient to ensure the complete transfer of goodwill in a sale of business. It considers that restrictions on enticing staff, while also necessary to secure the transfer of the goodwill of the business, should also be limited to two years duration. Consequently in the Authority's opinion the restrictions contained in clause 16 of the share purchase agreement, as originally notified, went beyond what was necessary to secure the complete transfer of the goodwill of the business and offended against section 4(1). As the duration of the non-compete provisions has now been reduced they no longer offend against section 4(1).

13. The service agreements also contained a number of restrictions on the individuals who were party to them. Firstly clause 3(a) of the service contracts provided that each of the individuals concerned immediately cease (except as required by their duties with SDH), all activities in connection with the buying, selling, importing, transporting or distribution of sugar and flour and should not without the consent of the company during the course of the agreement be engaged either directly or indirectly in any trade business or occupation other than the business of the company. In the Authority's opinion such a restriction on competing with the business of the company or on engaging in other business activities while employed by it, are not anti-competitive. The Authority has previously stated that, where a vendor enters into an employment agreement with the purchaser as part of the sale arrangement, a restriction on competing with the business for so long as the individual remains employed does not offend against section 4(1).

14. Clause 3(b) of the service contracts contained restrictions on the individuals who were party to the respective agreements competing with the business or soliciting its customers for three years after employment ceased and from soliciting any employee at any time. The Authority has indicated that where a vendor enters into an employment agreement with the purchaser as part of a sale of business arrangement, a restriction on him competing with the business after employment ceases offends against section 4(1) since it is not essential to secure the transfer of the goodwill of the business. In this instance at the time the service contracts were terminated the individuals concerned were already prevented from competing or soliciting customers, by virtue of the restrictions contained in the share purchase agreement. The restrictions in the service contracts did not, of themselves, have the effect of restricting or distorting competition during the period in which they had operated, although in different circumstances they would have done so. The Authority believes that the primary object of the arrangements was, as part of the sale arrangements, to complete the transfer of the goodwill of the business, although it believes that they went further than was necessary to achieve that end. Nevertheless the Authority does not believe that the object of the arrangements, at the time they were entered into, was to prevent, restrict or distort competition. As Greencore have now stated that they would not enforce the restrictions in the service agreements beyond 31 March 1994, when the restrictions in the share purchase agreement were terminated, the restrictions in the service agreements did not, in the Authority's opinion offend against section 4(1), since the individuals were prevented from competing by virtue of the share purchase agreement.

15. Clause 12 of the service contracts contained restrictions on the individuals disclosing confidential information or trade secrets which they obtained during the course of their

employment with the business. Such a restriction does not offend against section 4(1) as it is merely ancillary to the employment agreement.

16. In the Authority's opinion, Siuicre Eireann cpt., Messrs. Charles Lyons, Michael Tully, Thomas Keleghan and Charles Garavan are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the purchase and sale of the shares in Gladebrook Limited, including the service contracts contained therein, constitute an agreement between undertakings.

17. The Authority believes that as the sale element of the transaction was discharged prior to the commencement of the Competition Act, the agreement for the purchase and sale of Gladebrook Limited does not come within the scope of Section 4(1) of the Act. The non-compete provisions contained in clause 16(A), (B) and (C) of the share purchase agreement and in clause 3(b)(i), (ii) and (iii) of each of the four service contracts, as notified, offended against section 4(1). As amended by the undertaking given in the letter of 11 April 1994, they no longer offend against section 4(1).

18. 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 agreements listed below between Siuicre Eireann cpt., Messrs. Charles Lyons, Michael Tully, Thomas Keleghan and Charles Garavan and Talmino for the purchase and sale of Gladebrook Limited, notified on 30 September 1992 under Section 7, as amended by the undertaking given by Greencore plc in its letter of 11 April 1994, do not offend against Section 4(1) of the Competition Act, 1991.

CA/653/92E - Siuicre Eireann/Talmino and Messrs. Charles Lyons, Michael Tully, Thomas Keleghan and Charles Garavan;

CA/654/92E - Siuicre Eireann/Charles Garavan;

CA/655/92E - Siuicre Eireann/Charles Lyons;

CA/656/92E - Siuicre Eireann/Thomas Keleghan; and

CA/657/92E - Siuicre Eireann/Michael Tully.

For the Competition Authority

Patrick Massey

Member

14 June 1994.