Irish Competition Authority Decisions

1. Notification was made by Group 91 Architects Ltd on 26 August, 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 a shareholders agreement relating to Group 91 Architects Ltd.

2. This decision concerns a Shareholders Agreement between a number of architects collectively known as Group 91 Architects Ltd. The company was formed by the members as a joint venture to provide architectural services in particular for the purpose of the Temple Bar Framework Plan Competition won by the company.

(b) The parties involved

3. The parties involved in Group 91 Architects Ltd, formed in February 1992, comprise a number of architectural practices as follows: Shay Cleary Architects; Grafton Architects; Paul Keogh Architects; McCullough Mulvin Architects; McGarry Ni Eanaigh Architects; O'Donnell and Tuomey Architects; Shane O'Toole Architect and Derek Tynan Architect. The directors of the company are Michael McGarry, Siobhan Ni Eanaigh, Derek Tynan, Sheila O'Donnell, John Tuomey, Niall McCullough, Valerie Mulvin, Shay Cleary, Paul Keogh, Rachael Chidlow, Yvonne Farrell, Shelley McNamara and Shane O'Toole.

(c) The service and the market.

4. The market involved in this notification concerns the provision of specialised architectural services. Group 91 Architects Ltd was formed to pool the resources of the members in order to compete for the Temple Bar Framework Plan Competition. None of the individuals or firms involved, because of the size and nature of the project, could provide the necessary knowledge, expertise and resources separately.

(d) The arrangements

5. The notified Shareholders Agreement and Deed of Covenant was made on 14 May 1992, following the formation of Group 91 Architects Ltd. The purpose of the Shareholders Agreement and the Deed of Covenant was to regulate the future conduct of the business of the company and to clarify the position of the various members as regards their involvement in the company for the purpose of the project i.e. Temple Bar Framework Plan Competition, and subsequent architectural and consultancy work in the Temple Bar area of Dublin on behalf of Temple Bar Properties Ltd.

6. The Agreement defines the Business of the company as consultancy and/or framework studies for Temple Bar Properties Limited, individual commissions awarded by Temple Bar Properties Limited, additional commissions arising out of consultancy and/or framework studies and any other projects or services which by virtue of their nature and/or scale the directors decide by a Weighted Majority. A Weighted Majority is defined depending on the number of directors present at a meeting - four out of six, or five out of seven or six out of eight.

7. Clause 8.7 sets out the matters for which a weighted majority is required as follows:

" (i) the approval of any transfer of any shares of the company.

(ii) The issue of any shares for any purpose.

(iii) The request and distribution of commissions and/or work, as provided by

Clause 11.2 herein.

(iv) The taking of any commission/work from any Practice and the entrusting

thereof to some other Practice in accordance with Clause 11.5 herein.

(v) The decision to provide such professional services for such projects or such other

professional services as the Directors believe ought to be provided by the company.

(vi) The election of the Chairman, Managing Director, and Secretary, of the Company; PROVIDED ALWAYS , however, that where a weighted majority is not obtained for the election of a Chairman, Managing Director, and Secretary, of the Company, the persons presently in such positions shall continue on in such positions until such a weighted majority is actually obtained."

8. Under clause 11.2 the Board, by weighted majority as per clause 8.7 (above), will decide which of the architectural practices is allocated any commission and/or work received by the Company. Clause 11.5 allows the Board to re-allocate any commission and/or work to another practice if the practice which received it initially does not provide the proper services as required by the Board or if the practice has transferred its shareholding in the company. The shares in the agreement are held singularly (by sole practitioners) or jointly (between partners in a practice) and the number of directors is eight. The agreement also provides for the arrangements for board meetings, appointment of directors and alternate directors, division of services between the member practices, transfer of shares, etc.

9. Under clause 2 (a) of the Deed of Covenant, the covenantor agrees with the company not to:

"(i) Be directly or indirectly interested or connected in, or assisting in, carrying on any architectural service or advice, in competition with the Business of the Company.

(ii) Either on his or her own account or on behalf of any other person, firm company, solicit the employment of, or enter into partnership with, or appoint as Consultant, any person who is or has been an employee of the Company.

(iii) At any time hereafter make use of or disclose or divulge to any third party any information of a secret or confidential nature relating to the Business of the Company. "

Clause 2 (b) outlines the obligations of the covenantor in relation to carrying on the business of the company, insurance, codes of conduct, etc.

10. Clause 4 of the Deed refers to the duration of the obligations outlined above in clause 2. Those in clause 2 (b) cease to have effect from the cessation date. This is defined as the day or dates of such days, if more more than one, when the Covenantor transfers his entire shareholding and is no longer a shareholder of the company, resigns as a director or secretary and returns all commissions and/or work entrusted to him/her to the Board or such practice as the Board may nominate. These restrictions cease to apply if the company itself goes into liquidation. Clause 4.2 of the Deed refers to the obligations in clause 2 (a) above and states that these "...shall cease and have no effect on such day as is 18 months after the Cessation Date.".

(e) Submissions of the parties

11. The parties submitted, in support of their request for a certificate, that no architectural practice or individual party to the agreement would have been able to enter the Temple Bar Framework Plan Competition due to its size and nature. The parties pooled their knowledge, expertise and resources in a joint venture and entered and won the competition. They decided to form a company to provide advice to Temple Bar Properties Ltd, in order to overcome the problem of one party to the joint venture giving architectural advice, to the financial detriment of the other members. Following on that, they drew up a Shareholders Agreement and a Deed Of Covenant in relation to various matters pertaining to the company.

12. They submitted (incorrectly) that the obligations imposed by clause 2(a)(sic) ceased to have effect after the cessation date and it was specifically provided by clause 4(4) of the Deed of Covenant that in defining the business of the company only those projects or services upon which a majority decision had been made pursuant to clause 8.7 of the Shareholders Agreement had actually been made at the cessation date were included within the definition thereof.

13. The parties referred to the EU Commission Notice (O.J. 1968, C75/1) of 29 July 1968 on Cooperation between Enterprises wherein the Commission stated that cooperation among small enterprises to enable them to work more rationally and with greater productivity and competitiveness was justifiable. The Notice stated that "agreements having as their sole object the setting up of working partnerships for the common execution of orders where the participating enterprises do not compete with each other as regards the work to be done or where each of them by itself is unable to execute the orders".

14. They also submitted that in Commission Notice (O.J. 1990 C203/5) the Commission gave grounds for the evaluation of restrictions ancilliary to concentrations between enterprises. In this case a concentration had taken place between the parties to the agreement in relation to the specific services to be provided by the company. They submitted that the restrictions imposed by the Deed of Covenant and which limited the parties' freedom of action in the market, were directly related to the establishment and working of the concentration itself and were necessary to the implementation of the concentration and/or having regard to the short period after the cessation date within the rule of proportionality.

15. The parties claimed that the arrangements did not impose on the undertakings concerned terms which were not indispensable to the attainment of those objectives. The terms imposed were necessary if the company was to retain and provide the expertise and specialist advice for which the company came together. The agreement did not in any way eliminate competition in respect of the substantial part of the services provided by each of the parties thereto.

16. 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'.

17. 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.' Group 91 Architects Limited is a body corporate engaged for gain in the provision of architectural services (to Temple Bar Properties Limited). The members of the joint venture are also engaged for gain in the provision of architectural services as sole traders or as partners in architectural firms. They are therefore undertakings within the meaning of the Act. The notified agreement is an agreement between undertakings.

18. The notified agreement constitutes a shareholders agreement between the shareholders of Group 91 Architects Ltd for the purpose of regulating the business of the company and the rights and obligations of the various members as regards the purpose for which it was established - to compete in the competition for the development of the Temple Bar area on behalf of Temple Bar Properties Ltd. All the members of the company, Group 91 Architects Ltd are either architects practising solely or architectural firms.

19. The shareholders formed a partnership in order to compete in the competition for the development of the Temple Bar Area. Individually, none of the sole practitioners or architectural firms, who were and are competitors outside of this enterprise, could have entered for this competition or carried out the necessary work by themselves because of the size of the project. The Authority has stated that it does not consider partnerships per se to be offensive under the Competition Act. Partnership arrangements may be in breach of the Act by virtue of certain restrictive clauses contained therein. [1] The formation of a partnership by a group of small undertakings for a specific purpose such as this project which the undertakings could not have undertaken alone, is not considered to be a restriction on or a reduction in competition but, on the contrary, it is pro-competitive in its effect by enabling firms to compete where, in the absence of the partnership arrangement, they would be unable to do so.

20. The Authority's view is in accord with that of the EU Commission. In its Notice on agreements in the field of cooperation between undertakings [2] and the decision of October, 1988 on Eurotunnel [3], the Commission maintained that 'agreements having as their sole object the setting up of consortia for the joint execution of orders, where each of them by itself is unable to execute the orders, do not restrict competition.' In Eurotunnel also the Commission stated that 'even in the case of consortia formed by enterprises which normally compete with each other there is no restraint of competition if the participating enterprises cannot execute a specific order by themselves' [4].

21. The agreement encompasses a number of provisions and restrictions on the shareholders in their position as members of the company and on their commitments to its objectives. These provisions do not restrict the shareholders in their other activities in providing architectural services or advice as sole practitioners or as partners in their own architectural practices outside of the company. Consequently, none of these restrictions offends against Section 4 (1) of the Act.

22. The Deed of Covenant which forms part of the arrangements further cements the obligations of the shareholders to the company. Clause 2 (a) (i) requires the shareholder not to compete with the business of the company, that is in specified architectural services or advice. Clause 2 (a) (ii) prevents the shareholder from soliciting any employee of the company as an employee, partner or consultant. Clause 2 (a) (iii) restricts the shareholder from disclosing any confidential information relating to the business of the company. Clause 4.2 of the Deed binds the shareholder and director and carrying out work for the partnership to the obligations in clause 2 (a) outlined herein while s/he is a shareholder and also for a period of 18 months after the shareholder has ceased to be involved with the company.

23. The restrictions on the shareholders from competing with the business of the company or soliciting its employees or divulging confidential information during the time that they are involved in the business do not offend against Section 4 (1) of the Act since such restrictions are essential for the operation of the business. [5] The restriction also prevents the shareholders from competing with the business or soliciting the employees or divulging confidential information for 18 months after the party ceases to be involved in the business. Such a restriction is no more than is necessary to protect the goodwill of the partnership. The agreement specifies the geographical area involved as being the Temple Bar Area (as defined in the Temple Bar Area Renewal and Development Act, 1991). In this case the restrictions on the shareholders are limited to 18 months after they have ceased to be involved in the partnership and therefore, they come within what is considered to be acceptable to the Authority for these type of restrictions. Consequently, the restrictions do not offend against Section 4 (1) of the Competition Act, 1991.

24. In the opinion of the Authority, Michael McGarry, Siobhan Ni Eanaigh, Derek Tynan, Sheila O'Donnell, John Tuomey, Niall McCullough, Valerie Mulvin, Shay Cleary, Paul Keogh, Rachael Chidlow, Yvonne Farrell, Shelley McNamara, Shane O'Toole and Group 91 Architects Ltd are undertakings within the meaning of Section 3 (1) of the Competition Act, 1991 and the notified shareholders agreement is an agreement between undertakings. In the Authority's opinion, the notified agreement does not offend against Section 4 (1) of the Competition Act, 1991.

26. 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 shareholding agreement and the Deed of Covenant between Michael McGarry, Siobhan Ni Eanaigh, Derek Tynan, Sheila O'Donnell, John Tuomey, Niall McCullough, Valerie Mulvin, Shay Cleary, Paul Keogh, Rachael Chidlow, Yvonne Farrell, Shelley McNamara, Shane O'Toole and Group 91 Architects Ltd notified under Section 7 (1) on 26 August, 1992 (notification no. CA/65/92), does not offend against Section 4 (1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

20 October, 1995.