Irish Competition Authority Decisions

1. Rules of the Irish Farmhouse Holidays Association (the IFHA) and the Memorandum & Articles of Association of Irish Farmhouse Holidays Limited (the Company) were notified to the Competition Authority by the Irish Farmhouse Holidays Association on 24 June, 1997, 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 issue a certificate, a licence under Section 4(2).

2. This notification concerns the Rules of the IFHA and the Memorandum & Articles of Association of the Company. The Company was set up for the purpose of managing the affairs of the IFHA. The Rules of the IFHA and Memorandum and Articles of the Company provide a framework for the operation of the IFHA and the behaviour of its members.

3. The parties concerned are the Irish Farmhouse Holidays Association and Irish Farmhouse Holidays Limited. The IFHA was established in 1996 to co-ordinate and promote the activities of the providers of guest accommodation on farms. Today, it represents over 500 farmhouses throughout the country. The IFHA, which is involved in the marketing of farmhouse holidays on behalf of its members, operates a voucher system with tour operators in order to secure bulk business for the members. It also offers guidance and advice to members and provides an annual brochure detailing their premises. It has its registered office at 2 Michael Street, Limerick. In 1996, income generated by the IFHA amounted to IR£211,059. Affiliation fees for the same period were IR£63,826. Irish Farmhouse Holidays Limited is a management company set up specifically to manage the affairs of the Association. The company is administered out of the same premises as the Association, 2 Michael Street, Limerick.

4. Maintaining quality standards in tourist accommodation is no longer a direct function of Bord Failte. Bord Failte has licensed out this function to bodies such as, Tourism Quality Services Limited (TQS), Quality Approved Bed & Breakfasts Company Limited, and Farm and Country Standards Limited. TQS has the responsibility only of inspecting and registering hotels and guesthouses. [1] Quality Approved Bed and Breakfasts Company Limited is the body with responsibility for inspecting and registering B&B accommodation and country homes. Farmhouses, however, have a separate inspecting body, namely, Farm and Country Standards Limited. Before TQS can approve or register hotels and guesthouses they must consult with the Board of Bord Failte. In contrast, Bed & Breakfast inspecting bodies are not required to consult with Bord Failte before giving their approval. Bed & Breakfast accommodation is either approved or unapproved but not rated. Each inspecting body has its own separate guidelines for approval.

5. The notification concerns the provision of farm guest accommodation and the representation (marketing) of farmhouse accommodation providers both in Ireland and abroad. Bed and breakfast accommodation consists of three categories of houses, namely, town, country and farm houses. There are over 4,000 approved bed and breakfasts operating in the State. [2] Most Bed and Breakfast accommodation is family owned and run. Such accommodation is available in both urban and rural areas. While there are a number of alternative sources of tourist accommodation available (bed & breakfasts, caravan and camping, self catering cottages and apartments, hotels and hostels), the choice of accommodation depends mainly on price and purpose of visit. Each segment in the tourist accommodation market caters for a particular taste and price range. The market for the provision of Bed and Breakfast accommodation is highly competitive given the number of both approved and unapproved bed and breakfasts operating in the market. There are no barriers to entry into this market. No particular capital levels are necessary in order to enter the business and there are no licences required.

6. The Irish Farmhouse Holiday Association is a marketing association promoting the interests of farmhouse accommodation providers. It publishes its own guide detailing the unique character of the members. While detailed statistics on the market are not readily available, there are over 500 Bord Failte [3] approved bed and breakfasts on farms throughout the country. Although the IFHA brochure is exclusive to approved farm guest accommodation, the Association’s publication is in competition with other accommodation guides distributed in the main tourism markets around the country. For example, Bord Failte publishes its own accommodation guide in which it lists all approved accommodation. Approved tourist accommodation is also listed in tourist offices around the country. Unapproved accommodation is not listed in the Bord Failte accommodation guide or tourist offices. Other accommodation guides in the market include the Country Homes Guide, the Irish Hotels Guide, the Blue Book and the Discover Ireland brochure.

7. The Authority considers the relevant markets to be the provision of Bed and Breakfast accommodation and the representation of Bed and Breakfast providers in this case. The geographic market is the State.

8. Rule 2 sets out the main objective of the Association, which is:

“the economic, social, educational and environmental development of rural Ireland for the purpose of curbing de-population and contributing towards employment retention, rural regeneration and renewal by promoting it nationally and internationally and in particular by the encouragement of rural tourist accommodation.”

9. The rules also stipulate that a register of members must be maintained and only registered members are entitled to attend and vote at Association meetings. Moreover, the Rules of the Association provide for the conduct of Annual General meetings, Special meetings, Extra-Ordinary General meetings and procedures relating to the election and operation of the Executive Council. The Council is to consist of a chairman, secretary and regional representatives. The chairman and secretary of the Association shall also be chairman and secretary of the Board of Directors of the Company. Changes to the Rules can be made by a two thirds majority of those present at an extra ordinary general meeting. The chairman has the power to deal with matters not covered by the rules and his ruling is final. Each of the rules is separate and severable.

10. The Rules also contain provisions relating to entry to, and expulsion from the Association. Rule 4 relates to access to membership.

4.(a) “Those whose houses have been approved of and listed by Farm and Country Standards Limited acting under licence from Bord Failte, or registered by Tourism Quality Services Limited, under licence from Bord Failte, and who has been operating for a minimum of one year after such approval ... ”

(b) “Those who have paid the annual subscription to the Association or to the Company as determined from year to year by the Executive Council and who have completed the annual renewal form.”

(c) “Those who have been approved for membership by the Executive Council”.

11. Rule 6 provides for the cessation of membership. A member may terminate his membership by giving written notice to the secretary of the Association (the Articles of Association provide that one month’s notice is required). Membership also terminates if a member dies, retires, fails to pay the annual subscription fee or complete the membership form within fourteen days of the subscription falling due for renewal, or if the house loses approval from the Farm and Country Standards Limited or Tourism Quality Services Limited.

6(e) provides that if the Executive Council by a majority of three fifths decides

“ ... that there is reason to believe that because of some act, behaviour, conduct, attitude or the breach of these rules or any of them, which in the opinion of the said three fifths majority is not consistent with and is detrimental to the aims, policies or objectives of the Association, consideration should be given to terminate the membership of any such member ... ”

The right to a fair hearing is preserved and the principle of audi altrim partem is protected by the provisions in this rule.

6(f) provides that “a member shall be deemed to be acting contrary to the aims and objects of the Association if that member is a member, or has applied for membership of any other organisation or association of similar aims and objects as the Association and which in the opinion of the Executive Council is in conflict or competition with the Association.”

12. Clause 7 of the rules concerns Members’ Obligations . Every member is obliged to:

13. The IFHA operates a travel voucher system with tour operators in order to secure bulk business for its members. Customers booking through the Association or a travel agent receive a voucher for a standard rate. This standard trade rate is determined by the Association and applies to vouchers issued by the Association or travel agent. The rate charged for vouchers may in some instances be lower than the price charged by individual accommodation providers. In that case the service provider has the option of whether or not to participate in the voucher system. A service provider who accepts a voucher is reimbursed by either the Association or travel agent.

14. The Memorandum and Articles of Association of Irish Farmhouse Holidays Limited set out the arrangements for the operation of the company and the obligations of members. The object for which the company is established “is the management of the affairs of Irish Farm Holidays Association” (Clause 2). Clause 3 gives the company additional powers some of which include:

The remaining provisions in the memorandum of association relate to limiting the liability of members of the company, the winding up of the company and the furnishing of annual accounts.

15. Provisions for membership of the company are set out in Articles 2 and 3 of the Articles of Association. The members of the company shall consist of the Executive Council of the Association and those holding posts as directors. The proposed registered number of members of the company is 30 but this may increase from time to time. Article 4 provides that the rights of members are non-transferable and cease on expiry of membership. Article 5 provides for termination of membership with one month’s written notice to the secretary of the company while under Article 6 a member shall cease to be a member of the company if he dies, retires, finishes as a member of the executive council, fails to qualify as a member of the IFHA or if he sells the approved premises.

16. The Articles also provide for the conduct of annual general meetings, extraordinary general meetings, special meetings, directors meetings and procedures relating to the election and rotation of directors (of which there are seven), the provision of accounts and directors reports. The chairman and secretary of the Association shall also be chairman and secretary of the company. The business of the company shall be managed by its seven directors.

17. In its submission in support of a request for a certificate the IFHA draws attention to rules 4 and 6 of the Association. Rule 4 concerns access to membership. The IFHA considers it essential that the standard of farmhouse accommodation being provided should be of the standard laid down by Farm and Country Standard Limited and Tourism Quality Services Limited (acting under licence from Bord Failte). It also feels that a member or prospective member should be operating for a minimum of one year after they receive such Bord Failte approval before they become a member of the Association. Moreover, the IFHA considers it necessary that membership be approved by the Executive Council. They argue that this is a necessary requirement where the Executive Council believes that it is in the best interests of the Association not to have a particular member join the Association. The IFHA submits that the provisions contained in rule 4 are reasonable and necessary for the efficient and harmonious future of the Association.

18. Rules 6(e) and (f) relate to cessation of membership because of “some act, behaviour, conduct, attitude or breach of rules” 6(e); or if a member joins or applies to join any other organisation which is in conflict or competition with the association 6(f). The IFHA submits that rule 6(e) is broadly drafted to afford a member every opportunity of making a case on his or her behalf in the event of expulsion. They argue that the common law concept of natural justice and the guaranteed right to fairness is protected in this particular rule. In relation to rule 6(f) the Executive Council is entitled to prevent membership of the Association where it considers membership of another association is in conflict or competition with the Irish Farm Holidays Association. The IFHA submits, that this rule contributes to the improvement of the provisions of the service and the encouragement of rural tourism accommodation without enabling the association to eliminate competition. The IFHA submits that both rules 6(e) and (f) are necessary to ensure a sound basis on which to build the Association nationally.

19. Section 4(1) of the Competition Act, 1991, as amended, 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 goods or services in the State or in any part of the State are prohibited and void.”

20. 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.”

21. Irish Farmhouse Holidays Limited is a corporate body engaged for gain in the organisation and promotion of farm holidays. It is therefore an undertaking for the purpose of Section 3(1) of the Competition Act, 1991. The individual members of the Association are engaged in the provision of services ‘for gain’ i.e. the provision of farm guest accommodation, and are therefore undertakings. The Association is a representative body established primarily to promote the interests of its members. It is an association of undertakings and the rules under which the Association operates and the Memorandum and Articles of Association of the company represent decisions by an association of undertakings setting out the terms on which they agree to provide and market their services. EC precedents define a trade association as follows: [4]

‘A trade association is an organisation that reflects, encourages and promotes the interests of a given industry or economic sector. In its ‘typical’ form a trade association is composed of undertakings - usually competitors - that have come together to share experiences and ideas which may contribute to a general improvement of the industry.

22. In a previous decision [5] the Authority established that an Association whose object is to represent the interests of its members as undertakings is an Association of undertakings. Consequently, the IFHA is an association of undertakings within the meaning of Section 4(1), as all its members are undertakings. The Association’s Rules together with the Memorandum and Articles of Association of the Company constitute decisions of an association. These decisions have effect within the State.

23. The Competition Act does not contain any blanket prohibition on the existence of trade or professional associations or on their activities. In its decision on the Association of Optometrists, Ireland, [6] the Authority took the view that it is only decisions of associations of undertakings which have as their object or effect the prevention, restriction or distortion of competition which are prohibited under Section 4(1). In that decision the Authority recognised that the protection and promotion of the members’ interests was a legitimate activity for a professional association to engage in and, in general, such activities were not anti-competitive. However, measures to protect members’ interests that would restrict competition are prohibited under Section 4(1).

24. In this instance, the decision is an agreement between competitors to market their product collectively. While individual accommodation providers have agreed to collectively market their product, competition is evident in terms of price and facilities offered. Collective marketing can lead to efficiency gains for accommodation providers. For example, collective marketing may lead to an improved image of farmhouse holidays together with an increased product awareness (particularly among foreign consumers) and reduced search times in locating farmhouse accommodation. Providers of farmhouse holidays may benefit through wider market access at significantly reduced costs. The IFHA brochure is distributed in all the main tourism markets across the country. The Authority believes, therefore, that the decision to collectively market farmhouse holidays does not prevent, restrict or distort competition. The decision does not contravene Section 4(1). While the overall arrangement may not offend, it is also necessary to examine the various provisions of the agreement in the light of Section 4(1).

(i) Access to membership

25. Entitlement to publication in the annual brochure produced by the Association is restricted to members of the Association. Rule 4 deals with access to membership of the Association. In particular, it specifies that only houses which have been approved of and listed by Farm and Country Standards Limited or registered by Tourism Quality Services Limited, acting under licence from Bord Failte and who have been operating for a minimum of one year after such approval are eligible for membership. In addition, membership is subject to the approval of the Executive Council, the completion of an annual renewal form and payment of the annual subscription fee.

26. Membership of the IFHA is not compulsory in order for an individual to provide or advertise farmhouse accommodation. Instead, farmhouse accommodation providers may choose to be members of a similar association such as the Town & Country Homes Association who produce their own separate guide. Where a farmhouse accommodation provider chooses not to be a member of any particular association it can be listed in the main Bord Failte guide listing all approved holiday accommodation. Unapproved farmhouse accommodation may also be provided [7] but would not be listed in any Bord Failte guide.

27. In its submission the IFHA stated that it considered it essential that the standard of farmhouse accommodation being provided should be of the standard laid down by Farm and Country Standards Limited or Tourism Quality Services Limited, acting under licence from Bord Failte. The Authority considers that approved accommodation is a reasonable and objective criterion for membership. Such a criterion protects the interests of the consumer by signalling to potential consumers a certain quality of product. Moreover, enforced quality standards protects the image of farm holidays and Irelands image as a quality tourist destination in general.

28. Today over 500 providers of approved farmhouse accommodation are members of the IFHA and membership numbers are not limited. It would seem that rule 4 has not been operated in such a way as to restrict competition. Consequently, the Authority does not believe that Rule 4 contravenes Section 4(1).

(ii) Termination of membership

29. Rule 6 deals with cessation of membership. The relevant clauses are 6(c) (e) and (f). Clause 6(c) provides that “if the house of the member loses approval from the Farm and Country Standards Limited or Tourism Quality Services Limited” membership may be terminated. 6(e) provides that if the Executive Council by a majority of three fifths decides that there is reason to believe “some act, behaviour, conduct, attitude or breach of the rules” is not consistent with and is detrimental to the aims, policies or objectives of the Association a member may be expelled. A member may not be expelled unless at least one months notice is given as to the reason why that membership is being considered. In addition, 6(e) provides the member with a right to be present and be heard at a meeting of the Executive Council where his membership is being considered. Clause 6(f) provides that if a member joins or applies to join any other organisation which is in conflict or competition with the association, membership may be terminated.

30. Again, in its decision on the Association of Optometrists, the Authority did not consider that Articles relating to the expulsion of a member per se offended against Section 4(1) of the Competition Act. If, however, expulsion or the threat of expulsion effectively represented a means of enforcing anti-competitive practices, then it would take the opposite view.

31. Clause 6(c) provides that membership of the IFHA may be terminated where a farmhouse loses approval from the Farm and Country Standards Limited or Tourism Quality Services Limited. In paragraph 27 above the Authority has stated its opinion that approved accommodation is a reasonable and objective criterion for membership. The Authority believes that clause 6(c) does not prevent, restrict or distort competition.

32. Membership may be also terminated because of “some act, behaviour, conduct or breach of the rules” which are inconsistent with and are detrimental to the aims, policies or objectives of the Association. The IFHA submits that rule 6(e) is broadly drafted to afford a member every opportunity of making a case on his or her behalf in the event of expulsion. The Authority considers that clause 6(e) does not per se contravene Section 4(1).

(iii) Exclusive membership

33. Membership of the Association is restricted to persons who are not members of other associations or organisations with similar aims to the Association. In the Authority’s opinion, the terms and conditions of membership of the IFHA, including, the exclusive obligation, are known to potential members on application and membership is voluntary. While membership of the IFHA is exclusive, members are not compelled to be part of that Association. Membership may be terminated with one months written notice to the secretary of the Association. Furthermore, the Authority believes that while membership of the IFHA is exclusive this does not prevent farmhouse accommodation providers from providing or marketing their services. There is a separate Bord Failte brochure listing all approved holiday accommodation within the state and there are various other brochures published by other trade associations in which to market farmhouse accommodation services. The IFHA’s publication is in competition with these alternative guides which are distributed in the main tourism markets around the country. The Authority does not believe, therefore, that being excluded from the IFHA or their particular brochure, on the grounds of being a member of a similar association, prevents individuals from competing for business. The existence of a large number of different publications indicates that there are no serious barriers to prevent others from producing their own brochures in which to market their services. The Authority does not considers rule 6(f) to be anti-competitive and so expulsion on the grounds of that rule would not contravene Section 4(1).

(iv) Members’ Obligations

34. Rule 7 provides that every member is obliged to “accept travel agency vouchers from all agents at the agreed rate determined by the Association except those who have indicated in their renewal form that they do not wish to accept travel agency vouchers”; keep the contents of any communication from the management of the Association including trade rates private and confidential and “maintain the rates as indicated in each member’s renewal form.” The Authority does not believe that the operation of a voucher system prevents, restricts or distorts competition. Effectively, the scheme means that members agree to accept vouchers in full payment for accommodation, to be reimbursed at a rate set by the Association. However, individual service providers have the freedom to decide their own rates and to decide whether or not to participate in the voucher system. The Authority therefore considers that the operation of the voucher system does not constitute price-fixing and does not, therefore, contravene Section 4(1).

35. Neither does the Authority believe that the obligation to maintain rates as indicated on each member’s renewal form prevents, restricts or distorts competition. While service providers are under an obligation to maintain rates as indicated on their renewal form, it is the service provider who determines the initial rate. The Authority, therefore, considers that Rule 7 does not contravene Section 4(1).

36. The Authority therefore concludes that the arrangements do not have as their object or effect, the prevention, restriction or distortion of competition within the state or any part of it. They do not therefore contravene Section 4(1).

The Irish Farmhouse Holidays Association is an association of undertakings within the meaning of the Competition Act. The Association’s rules and the Memorandum and Articles of Association of Irish Farmhouse Holidays Limited constitute decisions by an association of undertakings within the meaning of Section 4(1) of the Competition Act.

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 Rules of the Irish Farmhouse Holidays Limited and the Memorandum and Articles of Association of Irish Farmhouse Holidays Limited, notified under Section 7 of the Competition Act on 24 June 1997 (notification no. CA/13/97) do not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

Isolde Goggin

Member

17 July 1998