Irish Competition Authority Decisions

1. Notification was made by Hampden Group plc, Reid Group plc and Moyne Shelf Company (No. 66) Limited on 19th February 1996 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. The notification concerns a joint venture agreement, dated 20th December 1995 between Hampden Group plc, (‘Hampden’) and Reid Group plc (‘Reid’), for the sale of upholstered furniture and ancillary goods. The Territory is Northern Ireland and the State.

3. Hampden Group plc whose registered office is in Belfast is a company which was originally formed to trade a DIY franchise in Ireland for Texas, a well known DIY retailer to the public. Hampden now exists as a holding company for the operation of a number of retailing operations such as Texas (now Texas Homebase Ireland Ltd) and Allied Carpets, vide Decision No 561. Reid whose registered office is in Glasgow is a holding company and also a furniture manufacturer. No other company in either group competes in the market effected by the arrangements in the agreement or in any related market. Reid Furniture (Ireland) Limited (formerly called Moyne Shelf Company (No. 66) Limited), is the joint venture through which it is intended that there be made available to the general public, good quality mid-priced upholstered furniture and ancillary products.

4. The products, as defined in the agreement, are upholstered furniture and related products in the nature of occasional furniture, paintings, curtain material, table lamps and the like as sold by Reid in Great Britain whether manufactured by Reid themselves or acquired by Reid from third party suppliers. For the purposes of this notification, the geographical market is the State.

5. The notifying parties submitted that the market for upholstered furniture and related products is a large market in the State with many participants by way of sellers and buyers. The notifying parties submitted that the market was highly competitive, that it was easy for new suppliers and retailers to enter the market and that the products were readily substitutable. For the year ended 31st December, 1995 the turnover of the Hampden Group plc was £36.8m. Included in this figure is £7.8m turnover in respect of the State. The profit of the company before tax was £1.5m. For the same period the turnover in respect of the Reid Group plc was £25.4m, vide Decision Nos. 542 and 561.

6. Hampden and Reid have agreed to co-operate in the establishment and management of the business of retailers of upholstered furniture and related products throughout the Territory through the medium of a joint venture company, formerly called Moyne Shelf Company (No. 66) Limited, with an authorised share capital of £10m and registered in Northern Ireland. Hampden and Reid have agreed to subscribe for shares in the company, which shall thereafter carry on such business as a joint venture company, Reid Furniture (Ireland) Limited.

7. Under this agreement Reid will supply the products exclusively to the joint venture at an agreed transfer price. Reid will make available to the joint venture any methods or systems used and developed by Reid including the exclusive use in the Territory only of Reids’ Trade Names and other identifying material, methods of advertising and publicity. Reid will also make available to the joint venture the design of store layout, ranges and displays utilised by Reid throughout its retail outlets operated in Great Britain. Stock control procedures, promotional operations and computer procedures will also be made available by Reid to the joint venture.

8. Reid will make available to the joint venture a fair share of all advertising, discounts and rebates on the products, equipment and services receivable from suppliers. Reids market research will be made available to the joint venture as well as training and training material required at the start up of the joint venture.

9. Operational and financial management will be the responsibility of Hampden Group and a General Manager will be appointed at the establishment of the joint venture. Hampden will do whatever is necessary as to provide efficient day to day management of the Company to at least the same standards as apply in respect of Reid’s outlets in Great Britain. Hampden will also be responsible for keeping true, proper and accurate accounts.

10. The parties claim that in view of the small percentage of market share which might be captured by the joint venture and the free availability of alternative suppliers of the products to the general public, that the arrangements in the agreement will not have the object or effect of preventing, restricting or distorting competition in the State or in any part of the State.

11. The parties, however, draw the Authority’s attention to Clause 18 of the main agreement and Clause 1 Schedule 1 which refer to reciprocal lock-out provision in the Agreement. Under Clause 18 of the main agreement each of the shareholders, while holding shares in the joint venture company and for a period of one year thereafter, shall not: (i) compete directly or indirectly with any business of the company as carried on at the relevant date in the Territory. (ii) solicit or endeavour to entice away from the company, any person who during one year preceding the relevant date a manufacturer for or supplier, customer or client of the company; (iii) supply or provide any goods or services in the Territory to any person who was at any time during the period of one year preceding the relevant date a customer or client of the company to whom the company had during that period supplied or provided goods or services in the Territory in the ordinary course of its business; (iv) solicit or endeavour to entice away from or discourage from being employed by the company any person who was at the relevant date an officer or employee of the company whether or not such person would commit a breach of contract by reason of leaving service (v) employ or engage or attempt to employ or engage or negotiate or arrange the employment or engagement by any other person, firm or company of any person who was at the relevant date [1], or was at any time during the period of one year prior thereto, an officer or employee of the company.

12. Under Clause 1 Schedule 1 of this agreement Reid will supply the products exclusively to the joint venture at an agreed transfer price. This shall not prevent Reid selling in the Territory (a) goods which are sold by retail to the public which do not compete with the products or (b) goods which are not intended to be sold or are not in fact sold by direct retail to the public.

13. The notifying party submitted detailed arguments in support of the granting of a Licence. However, the Authority is of the opinion that the grant of a Licence does not apply in this particular instance.

14. During the course of the assessment of this notified agreement, the Authority was in correspondence with the notifying party to confirm that the agreement, dated 20th December, 1995 was still in existence and that no amendments had been made to it. By letter dated 8th April, 1999 the parties confirmed that the agreement was still in existence but two amendments dated 29th May, 1998 and 10th June, 1998 had been made to the original agreement. The amendments relate to operational and day to day management of the joint venture.

15. Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service’ . Both Hampden Group plc and Reid Group plc are engaged in the production and distribution of goods for gain, and they are therefore undertakings within the meaning of the Act. The agreement is an agreement between undertakings. The agreement has effect within the State.

16. The Authority considers the agreement to be an agreement between a manufacturer of furniture and a retailer and that such an agreement in general does not pose any competition concerns. In view of the size and nature of the household goods market generally and the number of participants, vide Decision No 542, para 5, the Authority is of the view that there is no prospect of competition being eliminated in respect of the product(s) in this agreement or in a substantial part of the market.

17. The Authority is of the view that the terms which are imposed on each of Hampden and Reid are only those necessary to ensure the attainment of the objectives in the agreement. It is the view of the Authority that no aspects of the agreement restrict the parties in their freedom to take independent commercial decisions. In line with previous, Decisions No 542 and 561, the Authority opines that there will be a greater choice of product made available to the general public as a result of this arrangement. The Authority considers that Clause 18 of the main agreement and Clause 1 Schedule 1, vide paras 11 and 12, do not restrict or distort competition. The clauses do not, therefore, contravene, Section 4(1) of the Competition Act 1991.

18. It is therefore the view of the Authority that the agreement does not have as its object or effect the prevention, restriction or distortion of competition in the State or any part of the State within the meaning of Section 4(1) of the Competition Act.

19. In the Authority’s opinion Hampden Group plc and Reid Group plc are undertakings within the meaning of Section 3(1) of the Competition Act and the notified arrangements constitute an agreement between undertakings. In the Authority’s opinion the joint venture agreement dated 20th December, 1995 does not contravene 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 Joint Venture agreement dated 20th December, 1995 between Hampden Group plc and Reid Group plc notified under Section 7 of the Competition Act on 19th February 1996 (Notification No. CA/8/96), does not contravene Section 4(1) of the Competition Act, 1991, as amended.

For the Competition Authority,

Professor Patrick McNutt

Chairperson

27 July 1999

[1] For the purpose of this Clause ‘the relevant date’ means the date in question or the termination date (whichever shall be the earlier).