Irish Competition Authority Decisions

1. Notification was made by Riobard Lyne on 22 July 1994 with a request for a certificate under Section 4(4) of the Competition Act, 1991 or, in the event of a refusal by the Competition Authority to grant a certificate, a licence under Section 4(2) in respect of a contract for sale relating to Beaufort Townhouse, 25 Pembroke Park, Ballsbridge, Dublin 4.

2. The notification concerns the contract for sale agreement relating to Beaufort Townhouse, which is operated as a guest house, between George and Margaret Paul as vendor and Riobard Lyne as purchaser.

3. George and Margaret Paul carried on the business of a guest house at Beaufort Townhouse up to the date it was sold to Riobard Lyne. Riobard Lyne is now the owner and operator of Beaufort Townhouse.

4. The notified contract was signed on 30 May 1994 and provides for the purchase price for the premises and its contents with the closing date set as 3 June 1994. The special conditions to the sale, which were also notified, relate largely to the transfer of title and the position regarding charges on the property but also include the following clause viz.

"The Vendors agree that the Property has been sold as a going concern and the Vendors covenant with the Purchaser not within a period of two years from the date hereof and within a radius of 3 miles from Beaufort Town House to:-

1. Contact, approach or solicit any Client of Beaufort Town House in relation to the provision of short term overnight accommodation.

2. Individually or jointly, as Partners or Shareholders in any Company purchase or acquire any interest in a Guest House, Hostel or Hotel provided always it is hereby acknowledged by the Purchaser that the Vendors own, Lease and or operate and will continue to own and or operate various Flats, Digs, Bedsits and other Properties (which do and shall not for the said period of 2 years within the said radius consist of a Guesthouse, Hotel, Hostel or Motel) and are not prevented under this clause from acquiring, Leasing, Purchasing any further of such Properties and or operating same.

3. Subject to the above Margaret Paul agrees that she shall not as Employee, Proprietor, Partner or Shareholder become engaged on a full time basis in the provision of Guest House, Hostel or Hotel accommodation provided always it is hereby acknowledged and agreed with the Purchaser that she may work for temporary periods not exceeding a total of six weeks in any 12 month period as an employee only in a Guest House or otherwise in providing relief work and may work in a Hotel in the restaurant area on the basis that the remaining clause hereof remain in force."

5. In their submission the Solicitors for Riobard Lyne stated that the nature of the services provided was overnight short-term guest house accommodation. The business was in the nature of a small hotel. It was not a specific market otherwise in the sense that customers would be drawn from business and the private sector and all manner of persons would stay in the premises both Irish nationals and tourists. They also stated that the arrangement consisted primarily of a private agreement between individuals which had as its intention and objective the protection of the investment of the purchaser. It would not in any way restrict or distort competition in general in the Guest House/Hotel industry given that this particular premises/business would only represent a tiny fraction of the total available overnight accommodation in the area.

6. The Authority considers that George and Margaret Paul and Riobard Lyne, as guest house owners, are undertakings and that the notified contract is an agreement between undertakings. The agreement has effect within the State.

7. Under the contract for sale agreement, the ownership of a guest house and the guest house business at the premises passes from George and Margaret Paul to Riobard Lyne. The sale of a business does not per se offend against Section 4(1).

8. In addition the special conditions to the contract contain a number of non compete clauses which prevent the former owners of the business for a period of 2 years from the date of sale not to solicit any client of the guest house in relation to the provision of short term overnight accommodation or become involved in the hotel, hostel or guest house business. The restriction is confined to the area within 3 miles of the premises sold.

9. The Authority has dealt with restrictions on the vendor following the sale of a business on a number of occasions. In its first decision, Nallen/O'Toole [1], the Authority stated that it regarded some restrictions on the seller of a business as being essential in order to ensure the adequate transfer of the goodwill of the business. In its opinion, provided such restrictions were limited in terms of their duration, geographic coverage and subject matter to what was necessary to secure the transfer of the goodwill of the business, they would not be in breach of Section 4(1) of the Act. In GI Corporation/General Semiconductor Industries Inc. [2] the Authority considered that a restriction of 2 years would generally be regarded as sufficient for the complete transfer of the goodwill of a business. In this instance the time restriction applies for 2 years which is within the criteria accepted by the Competition Authority. Similarly, the application of the restriction to an area within 3 miles of the premises sold is no more than is necessary to protect the goodwill of the business being sold. The Authority therefore considers that these restrictive clauses do not offend against Section 4(1) and that the notified agreement between George and Margaret Paul and Riobard Lyne does not offend against Section 4(1) of the Competition Act, 1991. It is not clear to the Authority why it was felt necessary to obtain a certificate for this agreement in the first place.

10. The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the agreement between George and Margaret Paul and Riobard Lyne in relation to the contract for sale of Beaufort Townhouse, 25 Pembroke Park, Dublin 4 notified under Section 7 on 22 July 1994 (Notification No. CA/20/94), does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Des Wall

Member

12 October 1994