Irish Competition Authority Decisions

1. Notification was made by Irish Ropes Ltd on 30 September, 1992 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 an agency agreement between Irish Ropes Ltd and Newtec U.K. Ltd.

2. The notification concerns an agency agreement between Newtec U.K. Ltd "the principal" and Irish Ropes Ltd "the Agent" in which Irish Ropes Ltd was appointed as the sole agent in both the Republic of Ireland and Northern Ireland (the Territory) for the sale of products on behalf of Newtec U.K. Ltd.

3. Irish Ropes Ltd is a subsidiary (100% owned) of IRG Holdings plc which is controlled by Barlo plc (a publicly quoted company) involved in the manufacture and sale of radiators in Ireland and the UK. IRG plc is involved in the manufacture and distribution of plastic products and other ancilliary activities. Irish Ropes Ltd are distributors of cordage products and cold store operators. The turnover for the Barlo Group for the year ending 31 March, 1994 was £77.76 million and the turnover of Irish Ropes Ltd was £12 m. for the year ended April, 1995.

4. Newtec U.K. Ltd, based in Middlesex, is involved in the manufacture of packaging equipment (for the application of stretch and shrink film to goods ) for use by commercial customers.

5. The products involved in this agreement are types of packaging equipment for use by commercial customers for the application of stretch and shrink film to goods prior to the sale and distribution of the goods. Newtec U.K. Ltd manufactures the equipment and Irish Ropes Ltd acts as its agent to distribute the products in the Republic of Ireland (and Northern Ireland). Similar equipment is also distributed to end-users by a number of engineering and packaging equipment contractors, Durapak, Signode, E.S.M., J.V. Miller and Bruce Packaging being the other competitors in this market. The estimated total turnover in this market, according to the applicant, is IR£2 million approximately per annum. It is claimed that there are no significant barriers to entry into the market and competition between the various distributors relates mainly to the standard of the design and specification of the equipment supplied. There is a wide variety of competing products in this market which can be used as substitutes for each other. The company's share of the market in the goods in question is relatively small.

6. The notified agreement is an agency agreement, dated 24 May, 1991,commencing from 1 June, 1991, for a period of three years and renewable on a 6 monthly basis, appointing Irish Ropes Ltd as sole agent for Newtec U.K. Ltd in the State. The relevant clauses in the agreement are as follows:

(i) Under clause 1 the agent and the Principal agree:

"(a) The Principal hereby appoints the Agent as the sole agent of the Principal in the Territory comprising:-

REPUBLIC OF IRELAND

NORTHERN IRELAND

(b) The Agent shall not except by special arrangement with the Principal endeavour to obtain any orders for the sale of Agency Products which to its knowledge are ultimately to be delivered outside the Territory."

(c) The Principal shall not appoint any other Agent in respect of the Products in the Territory while this Agreement remains in force, unless and until notice of termination shall have have been given in accordance with Clauses 3,23 and 24."

(ii) Under clause 4 the agent agrees:

"...at all times use its best endeavours to secure orders for the Products within the Territory, and further the Principal's business interests by promoting good relations with customers and prospective customers."

(iii) Under clause 6 the agent agrees that:

"...in all its activities and transactions in pursuance of this Agreement the Agent shall clearly disclose that it is acting as the Agent of the Principal and it will so describe itself in all documents used or issued in connection with the said agency. The Agent shall not act as Principal in any such activity or transaction nor shall it accept any order, make any contract or incur any other liability on behalf of the Principal without the Principal's prior approval in writing."

(iv) Under clause 7 the agent agrees that:

"In the event of the Agent receiving any money due to the Principal the Agent shall immediately remit such money to the Principal without deduction in respect of commission or otherwise."

(v) Under clause 11 the agent agrees not to:

"...dispute or prejudice any patent or other proprietary right of the Principal in the Territory and shall immediately inform the Principal of any improper or wrongful use in the Territory of letters, patent, trade marks, design or other industrial or commercial property rights relating to the Products."

(vi) Under clause 12 the agent agrees:

"So long as the Agreement remains in force the Agent shall not sell nor be in any way concerned in the sales of any products which in the opinion of the Principal shall or may compete with the Products nor be interested directly or indirectly in any business firm or company manufacturing or selling products which so compete or are likely to do so."

(vii) Under clause 15 the Principal agrees to:

"..credit the Agent with commission at the rates specified in the said Schedule hereto on all sales of the Products in respect of which a binding contract is effected during the existence of this Agreement and the orders for which emanate from and the deliveries of which are made into the Territory. The Principal will also credit the Agent with full commission for orders negotiated within the Territory for delivery outside, AND half commission on orders negotiated by the Principal outside the Territory for delivery in the Territory."

7. Irish Ropes Ltd submitted that the agreement was not contrary to Section 4 of the Competition Act, 1991 and requested the Authority to grant a certificate in respect of the agreement. They further submitted that it had been established by the EU where a genuine agency relationship existed, Article 85 (1) would not apply to an agency agreement existing between the principal and the agent in such a case. The Authority should apply similar reasoning in considering this agreement.

8. The company submitted that this agreement came within the criteria outlined in the EU 1962 Notice on Exclusive Dealing Contracts with Commercial Agents for the following reasons:

(i) Irish Ropes Ltd did not act as an independent trader in its dealings with Newtec U.K. Ltd.

(ii) All financial risks associated with the relationship established by the agreement were borne by Newtec U.K. Ltd and not by Irish Ropes Ltd.

(iii) The agreement provided under clauses 15, 16 and 17 that Irish Ropes Ltd did not purchase the products from Newtec U.K. Ltd for resale but rather earned a commission on sales of the products which it made on behalf of Newtec.

(iv) Irish Ropes Ltd was not obliged under the agreement to maintain large stocks of the products on its own property.

(v) The company was not obliged to provide a substantial service to customers free of charge at its own expense.

(vi) Irish Ropes Ltd did not have any discretion to determine the price of the products or the terms upon which the products were supplied to customers.

9. The company submitted that clause 6 of the agreement required them to disclose to all persons with whom it dealt that it was acting as the agent of Newtec U.K. Ltd and was bound not to act as principal in any activity or transaction carried on in relation to the agency between itself and Newtec.

10. Irish Ropes Ltd further submitted that the European Commission and the European Court of Justice had decided that the most important factor which would lead to a determination that an agency existed was the absence of risk for the agent when conducting business on behalf of the principal. They cited the example of a Commission decision on Austin Rover (ARG)/Unipart where Article 85 (1) did not apply to the promotional aspects of the relationship between the parties since Unipart acted "in the role of an agent bearing no entrepreneurial risk". In Pittsburgh Corning Europe , the Commission stressed that it was not the use of the word "agent" which was critical but rather the economic reality of the situation. The company submitted that it was not bearing any of the risk in the relationship between itself and Newtec U.K. Ltd and consequently the criterion was fulfilled. The company also submitted arguments in support of its request for a licence, which are not relevant to this decision.

11. 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'.

12. 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.' Newtec U.K. Ltd is engaged in the manufacture and distribution of packaging materials for gain. Irish Ropes Ltd is engaged in the manufacture and distribution of packaging materials and other products for gain and, consequently, they are both undertakings within the meaning of section 3(1) of the Competition Act. The agreement is therefore an agreement between undertakings.

13. The Authority considers that Irish Ropes is an intermediary between Newtec, the principal, and the purchaser of the goods is, therefore, an agent of Newtec. The Authority has set out its views on agency in a number of decisions including the Conoco consignee agreement. [1] An agency agreement generally does not offend against section 4(1). The Authority indicated in Cerestar UK Ltd /Betco Marketing Ltd [2] that it might take a different view where an agent dealt in a wide range of competing goods or where two directly competing companies appointed the same agent. Here the agent's trade as agent forms only a small part of a business where it also trades extensively on its own behalf in a related field of products. However the goods sold by Irish Ropes as an agent are not in competition with the products sold by it as an independent trader. The Authority considers that the making of an agency agreement by these two parties does not offend against Section 4 (1). While an agency agreement may contain clauses which do not offend against Section 4 (1), there are no such clauses in the notified agreement.

14. Clause 1(a) and 1(c) provide that the agent shall be the sole agent and no other shall be appointed in the Territory. This is not offensive. The agent is an auxiliary organ of the principal and the principal may act through the agent as if the principal were acting directly itself. Clause 12 provides that the agent may not sell products competing with those of the principal. Again this is not offensive since the agent-principal relationship requires that the agent be integrated into the principal's business.

15. Clause 11 provides, inter alia, that the Agent shall not dispute any patent or other property right of the principal in the terrritory. The Authority has stated, in the context of the Exclusive Distribution Category Licence [3] that such clauses do not generally offend against section 4(1) and this clause does not offend.

16. In the Authority's opinion, Irish Ropes Ltd and Newtec U.K. Ltd 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 Irish Ropes Ltd is an agent of Newtec U.K. Ltd, 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.

17. 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 of 24 May, 1991 between Irish Ropes Ltd and Newtec U.K. Ltd (notification no. CA/294/92E) 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

26 April, 1995.