Competition Authority decision of 14 June 1994 relating to a proceeding under Section 4 of the Competition Act, 1991

Notification No. CA/296/92E ‑ Ipodec Ordures Usines S.A./GKN United Kingdom plc

Decision No. 342                

Introduction

1.	An agreement between Ipodec Ordures Usines S.A. (Ipodec) and GKN United Kingdom plc (GKN) and Brambles Industries Limited (Brambles) for the purchase and sale of the entire issued share capital of Frogmore Limited (Frogmore), Cleanaway Ireland Limited (Cleanaway) and O'Brien Waste Disposal Limited (O'Brien's) (collectively the Subsidiaries) containing a non‑compete clause, was notified to the Competition Authority on 30 September 1992.  The notification requested a certificate or, in the event of a certificate being refused, a licence.  The Authority issued a Statement of Objections on 28 March 1994.

The Facts

(a)	The Subject of the Notification

2.	The notification relates to an agreement dated 5  December 1990 between GKN and Brambles (collectively the Vendors) and Ipodec whereby the Vendors agreed to sell the entire issued share capital of the Subsidiaries to Ipodec.  The agreement also contained a non‑compete provision.

(b)	The Parties

3.	Ipodec is a limited company with registered offices in France.  GKN and Brambles are limited companies registered in England and Australia respectively.  Frogmore, Cleanaway and O'Brien's are all limited companies incorporated in the State engaged in the waste disposal business.

(c)	The Arrangements

4.	The notification relates to an agreement, dated 5 December 1990, for the sale by the Vendors of the entire share capital of the Subsidiaries to Ipodec.  Clause 8.1 of the agreement has the effect of preventing the vendors from competing in the waste disposal business within the State for a period of five years from the date of the agreement.  Clause 8.2 prevents the vendors, for the same period, from endeavouring to solicit or obtain the custom of any person who was a customer of the subsidiaries in the 12 months preceding the date of the agreement or from soliciting staff of the purchaser.  These non‑compete provisions do not prevent the vendors and Cleanaway from continuing to carry on business relating to PCB.

(d)	Subsequent Developments

5.	The Authority wrote to the parties on 13 July 1993 expressing concerns at the excessive duration of the non‑compete clauses.  Solicitors for the parties indicated, by letter dated 15 July 1993, that they were awaiting instructions from their clients on the matter and that they would revert to the Authority in due course.  The Authority then issued a Statement of Objections to both parties on 28 March 1994 stating that it intended to refuse a certificate or licence and offering them 28 days to respond to its objections.  They were also offered the opportunity of an oral hearing.  On 18 April 1994, solicitors representing Ipodec wrote to the Authority stating that their client did not intend to take any further action in this matter.  On 22 April 1994, GKN replied stating that they had no objections to the Authority's assessment.  They confirmed that the arrangements did not involve a transfer of technical know‑how.  They indicated they would like an oral hearing if Ipodec sought one.

Assessment

(a)	Section 4(1)

6.	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

7.	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.'  Ipodec, GKN and Brambles are corporate bodies engaged for gain in the waste disposal business and are, therefore, undertakings within the meaning of the Act.  The arrangements therefore constitute an agreement between undertakings.

(c)	Applicability of Section 4(1)

Sale of Business

8.	As the sale of business was completed prior to 1 October, 1991, the date on which the Competition Act came into force, this element of the agreement had been discharged by performance before the Act commenced.  The property which was the subject of the agreement had been transferred.  In the Authority's view, the prohibition in Section 4(1) only applies to a current or continuing contractual commitment or one entered into subsequent to the coming into force of the Act. As the merger or sale element of the 1991 transaction was discharged prior to the commencement of the Act, that aspect of the arrangements does not come within the scope of Section 4(1).

Non‑Competition Clause

9.	The agreement contained a five‑year non‑compete clause from the date of the agreement, 5 December 1990.  Clause 8.1 of the agreement has the effect of preventing the vendors from competing in the waste disposal business within the State for a period of five years from the date of the agreement.  Clause 8.2 prevents the vendors from endeavouring to solicit or obtain the custom of any person who was a customer of the subsidiaries in the 12 months preceding the date of the agreement or from soliciting staff of the purchaser.  Both of the restrictions in clause 8.2 also apply for a five year period commencing on 5 December 1990.  The Authority has indicated in a number of previous decisions that it generally considers a non‑compete period of two years as being sufficient to ensure the complete transfer of goodwill in a sale of business agreement.  This can be extended to five years where the sale involves the transfer of technical know‑how.  However, the Authority does not believe, on this occasion, that the notified arrangements contain any degree of technical know‑how.  The duration of the non‑compete period is therefore in excess what the Authority considers sufficient for the complete transfer of goodwill.  The parties have not advanced any reason for such a lengthy period in this instance.  In the Authority's opinion, the arrangements offend against section 4(1).

(d)	Applicability of Section 4(2)

10.	Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which offend against Section 4(1) but which, `having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not ‑

	(i)	impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;
	(ii)	afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.'

11.	The Authority has stated in a number of previous decisions that where the duration of the non‑compete provisions of an agreement is found to exceed what is necessary to secure the transfer of the goodwill of the business, it cannot be regarded as being indispensable to the agreement.  As all four of the requirements for a licence under section 4(2) of the Competition Act are not satisfied, the agreement cannot be granted a licence.

The Decision

12.	In the Authority's opinion, Ipodec Ordures Usines S.A., GKN United Kingdom plc, and Brambles Industries Limited are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified arrangements for the acquisition of Frogmore Limited, Cleanaway Ireland Limited and O'Brien Waste Disposal Limited constitute an agreement between undertakings.  For the reasons given above, the Authority believes that the arrangements have the effect of preventing, restricting and distorting competition.  The agreement of 5 December 1990 between Ipodec and the Vendors for the purchase and sale of the entire issued share capital of the subsidiaries offends against Section 4(1) of the Competition Act, 1991 and does not satisfy the conditions necessary for the grant of a licence under section 4(2).  Consequently, the Authority refuses a certificate or licence in respect of the agreement between Ipodec Ordures Usines S.A., GKN United Kingdom plc and Brambles Industries Limited for the purchase and sale of the entire issued share capital of Frogmore Limited, Cleanaway Ireland Limited and O'Brien Waste Disposal Limited, notified to the Competition Authority on 30 September 1992 under section 7 of the Competition Act.

For the Competition Authority

Patrick Massey 
Member
14 June 1994