Competition Authority Decision of 5 November 1992 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification Nos. CA/673/92E ‑ Thoroughbred Promotion & Development Co. Ltd./Grenfell Ltd. and CA/674/92E ‑ Bertram and Diana Firestone/His Highness Karim Aga Khan.

Decision No.11

Introduction

1.	Arrangements for the purchase of two stud farms by Grenfell Ltd (Grenfell) and of shares in Robert J. Goff plc by Thoroughbred Promotion & Development Co. (TPDC) were notified to the Competition Authority on 30 September, 1992.  The arrangements were notified both by TPDC and Grenfell (CA/673/92E) and by Bertram and Diana Firestone (CA/674/92E) on the same day.  Both notifications requested a certificate, or in the event of a refusal by the Authority to grant a certificate, a licence.

2.	The Authority has not previously published any notice of intention to take a favourable decision in relation to this notification.

The Facts

(a) The Subject of the Notifications

3.	The notifications relate to an agreement between Mr. and Mrs. Firestone (the Firestones) and His Highness Karim Aga Khan for the sale of two stud farms in Ireland along with 4,242,362 Ordinary Shares in Robert J. Goff plc (Goffs), bearing 9.56% of the voting rights in the company to the Aga Khan.  The farms are being acquired by Grenfell and the shares by TPDC both of which are ultimately owned by the Aga Khan.  Goffs is a firm which primarily carries on the business of bloodstock auctioneering and ancillary activities, such as providing bloodstock valuations, bloodstock financing and which also runs a theatre and exhibition centre.  The arrangements were the subject of lengthy court proceedings which resulted in the grant of an order for specific performance.

(b) The Parties

4.	The parties to the notified arrangements are Mr. and Mrs. Firestone (the vendors) and TPDC and Grenfell.  The Firestones owned and operated two stud farms in Ireland, Gilltown and Sallymount in County Kildare.  The Firestones also own a stud farm at Waterford, Virginia, USA.

5.	TPDC and Grenfell are corporate bodies.  They are ultimately owned and controlled by His Highness, the Aga Khan through a series of Luxembourg registered companies.  The parties stated that the Aga Khan owned two other stud farms in Ireland and also had significant interests in the French bloodstock industry.  Grenfell's business consists of owning and renting out stud farms to HHAKS, another company owned by the Aga Khan which, owns bloodstock and operates stud farms.  The parties have stated that TPDC's business consisted of holding shares in Goffs.  The parties indicated that the Aga Khan already owned 34.72% of the shares of Goffs through Bravo Romeo Limited and TPDC.

The Product and the Market

6.	A stud farm derives its income primarily from the sale of nominations for stallions standing at the stud, the nominations being owned by, or available for, the benefit of the stud, and the sale of bloodstock produced on the stud farm either at public auction or by private sale.  The market is the market for stallion nominations, the services concerning the physical keep and support for the stallions concerned and for bloodstock sales.

7.	In the case of Goffs the product is the provision of bloodstock auctioneering and ancillary activities.  This is stated to be an international market in which a small number of firms located throughout the world are engaged.  There is one other firm engaged in this market located in Ireland.  In addition the parties have stated that in their view the value of private sales transactions equal those at auction.

The Arrangements

8.	The agreement relates to the sale by the Firestones of Gilltown and Sallymount stud farms to Grenfell, together with the sale of 4,242,362 Ordinary Shares in Goffs, bearing 9.56% of the voting rights in that company, to TPDC.  The original agreements were entered into some time ago.  A dispute arose, however, which led to lengthy legal proceedings.  These resulted in a court order which required that the agreement be completed by 9 October 1992 or within 7 days of the Minister for Industry and Commerce indicating his approval for the merger, whichever was the later.

9.	Under the terms of the agreement the Firestones were required to issue redundancy notices to all of the staff at the two stud farms and to pay them their statutory redundancy entitlements and this has been done.  The arrangements therefore relate only to the two farms themselves and not to the businesses of the two farms.  The agreements contain no restrictive clauses.  The parties stated that the transfer of the shares in Goffs constituted a merger within the meaning of the Mergers Act 1978 (as amended).  They indicated that the merger had been notified to the Minister for Industry and Commerce under the terms of that Act by letter dated 20 August 1992.  The merger was approved by the Minister by letter dated 30 October 1992.

Submissions of the Parties

10.	TPDC and Grenfell submitted that, although the Aga Khan has increased his shareholding in Goffs by virtue of the agreement, this increase did not prevent, restrict or distort competition in the relevant market since the number of competitors in the market was not affected and it would not result in the diminution of actual or potential competition in the market for the services provided by the company.  They have also argued that:
	`His Highness has not obtained legal or de facto control over the commercial policy of ...the Company (a factor the relevance of which was stressed in BAT and Reynolds v. Commission, Cases 142 and 156/84, [1987] and referred to in the Woodchester decision at pages 13 and 15.'

11.	In the case of the stud farms the parties have argued that the acquisition would lead to improvements in the supply and quality of services available due to the application of the Aga Khan's expertise.  They submitted that such advantages would not accrue were the sale of the stud farms to be to anyone else.

12.	Both parties indicated that the notification was prompted by the Authority's decision in Woodchester and stated that as the present agreements constituted a merger they had decided to notify it to the Authority.

Assessment

(a)	Section 4(1)

13.	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.'

(b)	The Undertakings and the Agreement

14.	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.'  The parties to the present agreement are the Firestones, TPDC and Grenfells.

15.	Grenfell is a body corporate engaged in the business of owning and renting stud farms.  Renting a stud farm constitutes the provision of a service for gain and so Grenfells is an undertaking within the meaning of the Act.  TPDC, a body corporate, is, in effect, a holding company.  In a previous decision the Authority indicated that a holding company was an undertaking within the meaning of the Act because it was engaged in economic activity through subsidiary firms which it controlled.  This is the case with TPDC, and so it is also an undertaking.  The Firestones were engaged in the business of owning and operating stud farms in Ireland and are still engaged in this business in the United States.  They therefore constitute an undertaking within the meaning of the Act.

(c) Applicability of Section 4(1)

16.	The present arrangements therefore constitute an agreement between undertakings.  The Authority emphasises, however, that the prohibition in Section 4(1) relates only to agreements between undertakings `which have as their object or effect the prevention, restriction or distortion of competition within the State or any part of the State'.  Furthermore it notes that Sections 7(1) and 7(2) provide that agreements, decisions and concerted practices `of a kind described in Section 4(1)' and in respect of which the parties seek or request a licence or certificate shall be notified to the Authority.  Clearly not all agreements between undertakings are prohibited under Section 4(1), only those which have as their object or effect the prevention, restriction or distortion of competition.  Similarly, in the Authority's view, every agreement between undertakings is not notifiable under Sections 7(1) and 7(2), only those of a kind described in Section 4(1).

17.	Section 4(4) of the Act provides that the Authority may `certify that in its opinion....an agreement, decision or concerted practice....does not offend against Section 4(1)'  A literal interpretation would suggest that, as only agreements of a kind described in Section 4(1) may be notified, it would be somewhat difficult for the Authority to issue a certificate saying the arrangements do not offend against Section 4(1).  Indeed strictly speaking such an interpretation would mean that, unless an agreement offended against Section 4(1), it could not be notified with a request for a certificate in the first place.  In the Authority's opinion this reinforces the views expressed in its first decision, that Section 4(1) ought not to be interpreted literally.  It can happen that arrangements which at first sight appear to have the object or effect of preventing, restricting or distorting competition, may, after careful analysis, be found not to do so in practice.  The Authority believes that this is consistent with well established practice under competition law in the European Community and the United States.

18.	The Authority has also taken the view that the provisions of Sections 4(1), 4(4), 7(1) and 7(2) taken together, imply that an agreement may be notified, and a certificate requested, where the parties are in some doubt as to whether that agreement would offend against Section 4(1), but not otherwise.  In the Authority's view, there must be reasonable grounds for such doubts.  Again in Nallen/O'Toole it pointed out that a literal interpretation of Section 4(1) could result in almost any business agreement being found to be prohibited, since once a party enters into an agreement with another, it is prevented from concluding the self same agreement with someone else.  It is clear to the Authority that the intention of the Act is not to prohibit all business agreements, nor to require that all agreements be notified to the Authority.  The Authority in this instance accepts the parties' claim that they felt, in the light of its decision in Woodchester and as the agreement constituted a merger within the definition of the Mergers Act, it should be notified under the Competition Act.

19.	The Authority considers that its decision in Woodchester should not be interpreted in this way.  The Authority did not indicate in that decision, as has been widely reported, that all mergers had to be notified to the Authority.  It simply stated that, in its view, there was no provision in the Competition Act which would automatically exclude a merger, which was notifiable to the Minister for Industry and Commerce under the Mergers Act, from the scope of the Competition Act.

20.	It found in Woodchester that the notified arrangements for the acquisition of UDT Bank by Woodchester Bank constituted an agreement between undertakings and the question therefore, was whether this had the object or effect of preventing, restricting or distorting competition, within the State or any part of the State.  As the merger in Woodchester involved the acquisition by a firm of one of its competitors there was a possibility at least, that the object or effect was the restriction of competition.  The Authority found, after a detailed analysis, that the arrangement did not offend against Section 4(1).  It indicated that before a merger could be found to offend against Section 4(1) it would have to be shown that it would, or would be likely to result in a lessening of competition in the relevant market(s).

21.	The Authority considered first of all the acquisition of the two stud farms by Grenfell.  The arrangements do not involve the acquisition of the business of the stud farms but relate only to the acquisition of property and land on which the purchaser intends to establish its own business.  In the Authority's view this does not prevent or restrict any other party who so wishes, from engaging in the business of stud farming within the State or any part of it.  It cannot therefore be deemed to offend against Section 4(1).

22.	In the case of the acquisition of the additional shares in Goffs, the Authority notes from the submission on behalf of TPDC, that neither they nor the Aga Khan, who is the ultimate owner of TPDC, own or are involved in any business which is a competitor of Goffs.  There is therefore, no question of a merger between competitors.  It could be argued that, were TPDC and the Aga Khan to acquire actual or de facto control over Goffs, this could be used to restrict access to bloodstock auctioneering services by other horse breeders.  The Authority does not believe that there is any real likelihood of such a development, that there would in any case appear to be adequate alternative outlets for breeders, and considers that such parties would have protection under the Competition Act if such a situation were to arise.  The arrangements therefore represent nothing more than an agreement for the purchase of shares in a business.  Consequently the Authority can see no reason to believe that the acquisition of the shares in Goffs offends against Section 4(1).

23.	There were no restrictive clauses in the agreement.

The Decision

24.	Grenfell, TPDC and the Firestones are undertakings within the meaning of Section 3 of the Competition Act, and the notified arrangements constitute an agreement between undertakings.  In the Authority's opinion the agreement for the purchase of Gilltown and Sallymount stud farms and of 4,242,362 Ordinary Shares in Goffs do not have as their object or effect the prevention, restriction or distortion of competition within the State or any part of the State.  The notified agreement does not therefore, in the Authority's opinion, offend against Section 4(1) of the Competition Act.

The Certificate

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 agreement between Mr. and Mrs. Firestone of Waterford, Virginia, USA and Grenfell Ltd. and Thoroughbred Promotion & Development Company for the purchase of 2 stud farms (Gilltown and Sallymount in County Kildare) and of 4,242,362 Ordinary Shares in Robert J. Goff & Co. plc, notified on 30 September 1992 under Section 7 (CA/673/92E and CA/674/92E), does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey
Member
5 November 1992.