Competition Authority decision of 13 October 1994 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notifications Nos. CA/212/92E and CA/427/92E ‑ Murphy Brewery/ Clada Soft Drinks

Decision No. 362  

Introduction

1.	Notifications were made by each party separately of the distributorship agreement between Murphy Brewery Ireland Ltd. and Clada Soft Drinks Ltd. on 29 and 30 September 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 issue a certificate, a licence under Section 4(2). 

The Facts

(a)  The subject of the notifications

2.	The notifications concern an agreement between Murphy Brewery and Clada, whereby Clada is appointed what is termed `exclusive distributor' of Murphy draught and kegged products within a specified territory.

(b)  The parties involved 

3.	Murphy Brewery is an Irish registered company, located in Cork, whose ultimate parent company is Heineken N.V. of the Netherlands.  It is involved in the brewing, marketing and distribution of beers.  Clada is a company which is located in Galway and is involved in the manufacture of soft drinks, juices and bottled water, and in the distribution of fruit and vegetables, soft drinks, Murphy Brewery keg products and the bottled beers of other manufacturers.

(c)  The products and the market

4.	The products involved in the agreement are draught and kegged Heineken Lager Beer and draught and kegged Murphys Irish Stout.  Murphy Brewery estimates that it has the second highest share in the market for beer, lager and stout in the State, but this is very much smaller than that of the market leader, Guinness.  The service involved is the distribution of these products to the licenced trade.  Murphy Brewery delivers directly to the licenced trade in Cork and Dublin, and elsewhere it uses various distribution companies, including Clada.  Murphy Brewery stated that there were a large number of actual and potential suppliers of distribution services for this market.

(d)  The notified agreement

5.	The agreement between Murphy Brewery and Clada was made on 23 September 1987.  Clada was appointed what is termed an `exclusive distributor' of the products in the territory outlined in a map, the territory covering Connacht, the counties of Cavan, Donegal and Longford, and parts of Westmeath and Offaly.  All enquiries received by Murphy Brewery from the territory are to be referred to Clada, and Clada will be given exclusive rights in the territory for any new products.  Clada is not permitted to seek customers or promote the products outside the territory, nor stock the products in any branch or distribution warehouse outside the territory.  Murphy Brewery agrees not to supply any of its agents with draught products, who knowingly and wilfully supply the products in their draught form to customers within the territory, and it will use its best endeavours to ensure such a situation does not arise (clause 2.0).  Clada agrees to actively support the products in order to achieve agreed annual sales targets; to keep proper books and records and allow their inspection; and not to engage in advertising or other expenditure without authorisation.  Clada is paid a fee for warehousing and distributing the products.  The fee is to be agreed annually or from time to time as may be agreed but in the event of failure to agree shall not be less than a fixed percentage of the pretax selling price to retail customers.  The agreement may not be assigned by Clada without consent.  No brand or identification for the products may be changed or defaced in any way.  Title in the products is retained at all times by Murphy Brewery and the products at all times remain the property of Murphy Brewery.  The initial term of the agreement is ten years, followed by two additional periods of five years, unless 6 months' notice of termination is given by either party before the end of the fifteenth year of the agreement.

(e)  Submissions by the parties

6.	No submissions or arguments for a certificate or licence were made by Clada.  Murphy Brewery, however, stated that the exclusive nature of the agreement could be regarded as anti‑competitive, but this was contemplated by EU Regulation 1983/83, and was justified by the circumstances of the market.  Clause 2 was only in some of the agreements where it was believed necessary in the interest of maintaining a network, and it was contemplated by Article 2 of the Regulation.  Murphy Brewery submitted that the distributor was effectively an agent rather than a distributor, and the agreement should be entitled to a certificate since such a relationship did not restrict competition.  Reference was made to the 1962 Notice on agents by the EU Commission.  The distributor bore no financial risk and constituted an agent.  It was argued that the arrangements would facilitate the development of new, and the maintenance of existing, competitors in the market to stimulate further competition by offering high quality service.  There was a relatively high number of competitors and this number would not be significantly reduced.  The arrangements allowed for the creation and maintenance of new competitors in the geographical market because of the ability to use a local distributor with local contacts and distribution arrangements.  Murphy Brewery stated that it believed that the agreement did not appreciably affect trade in the State.  Murphy Brewery also presented arguments in support of its request for a licence, but these are not relevant to this decision.

7.	In response to questions from the Authority in August 1993, Clada stated that the agreement was not one for the purchase and resale of goods, and that Clada was remunerated only in respect of the warehousing and distribution costs which it incurred.  Drawing on the EU Commission's draft notice on commercial agency agreements as a guide to interpretation, Clada suggested that the agreement was a pure delivery agreement.  Clada essentially handled the physical distribution on behalf of Murphy Brewery, rather than being engaged in negotiating or concluding transactions on behalf of Murphy Brewery.  Murphy Brewery stated that the agreement was merely agency whereby the 'agent' merely collected the goods and delivered them, and prepared a delivery docket; Murphy Brewery invoiced the customer.  It also stated that the agreement was a pure delivery agreement.

Assessment

Applicability of Section 4(1) 

8.	Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings 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.

The Undertakings

9.	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".  Murphy Brewery is engaged in the production and distribution of goods, and Clada is engaged in the distribution of goods.  They are both undertakings, and the agreement is an agreement between undertakings.  It has effect within the State.

The notified agreement

10.	The essential feature of the notified agreement is that Clada delivers Murphy Brewery products to Murphy Brewery customers; in return for the performance of this service, Clada is paid a fee by Murphy Brewery.  The agreement does not involve the purchase and resale of the products by Clada, and it is not an exclusive distribution agreement as defined in the category licence for exclusive distribution agreements (Decision No. 144, of 5 November 1993), nor as defined in EU Regulation 1983/83.  While Clada is required to do some advertising, the agreement does not confer any continuing authority on Clada to negotiate the sale or purchase of goods on behalf of Murphy Brewery, and Clada cannot be considered to be a commercial agent of Murphy Brewery.  The Authority considers that the agreement involves merely the delivery of Murphy Brewery products by Clada within a defined territory on an exclusive basis.  It considers that undertakings are entitled to decide how their products shall be distributed to their customers.  Murphy Brewery has decided that, rather than deliver its goods itself in most parts of the State, it should use Clada and other distributors.  Distribution agreements involving delivery only do not, in the Authority's opinion, offend against Section 4(1) of the Competition Act.  

11.	While a delivery agreement might not per se offend against Section 4(1), certain clauses in the agreement might offend.  The Authority considers that none of the clauses in the notified agreement with Clada offend against Section 4(1).  In particular, the supplier is entitled to determine the duration of any agreement to deliver its goods, whether for a short or long period, without the term of the agreement affecting competition.  Likewise, the supplier is entitled to determine the remuneration paid to those persons who deliver the goods.  Murphy Brewery delivers its goods itself in some areas, it has the goods delivered by Clada in a defined area of the State, and it utilises commercial agents to deliver its goods in other defined areas.  Neither Clada nor the agents sell Murphy Brewery products on their own account, and they are required to sell to customers within the territory allocated to them.  In these circumstances, the restrictions in Clause 2, whereby Clada must not actively sell outside its territory and is protected from other customers outside the territory selling into the territory, do not, in the opinion of the Authority, effect competition, and so they do not offend against Section 4(1).

The Decision

12.	Murphy Brewery and Clada are undertakings, and the notified agreement is an agreement between undertakings.  In the Authority's opinion, the notified agreement is a delivery agreement, and it does not have the object or effect of preventing, restricting or distorting competition.

The Certificate

13.	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 delivery agreement between Murphy Brewery Ireland Ltd and Clada Soft Drinks Ltd notified under Section 7 on 29 and 30 September 1992 (notification nos. CA/212/92E and CA/427/92E) does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick M. Lyons
Chairman
13 October 1994