COMPETITION AUTHORITY

Competition Authority Decision of 18 December 1995 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification no. CA/30/95  ‑ Collins / Butler / O'Brien.

Decision no. 454

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Competition Authority Decision of 18 December 1995 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification no. CA/30/95  ‑ Collins / Butler / O'Brien.

Decision no. 454

Introduction

1.	This decision concerns a Partnership agreement dated 4 August 1995 between  Richard A. Collins, Thomas M. Butler and John Noel O'Brien. The agreement was notified on 29 August, 1995 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 grant a certificate, a licence under Section 4 (2) of the Competition Act. 

The Facts

(a) The subject of the Notification

2.	The notification concerns a partnership agreement between Richard A. Collins, Thomas M. Butler and John Noel O'Brien for the setting up of an auditors and accountants practice, primarily for farmers, under the title of 'Collins, Butler, O'Brien', as an addition to the existing business of agricultural consultants carried on by Richard A. Collins and Thomas M. Butler (formerly known as Collins, Butler & Company). 

(b) The parties involved

3.	 Richard A. Collins and Thomas M. Butler carry on the business of an agricultural consultancy service under the titles of Farm Business Advisers Ltd and Farm Business Advisors (Bandon) Ltd, of which they are the majority shareholders. The business of auditors and accountants is carried on as an ancillary business from their offices at Fermoy and Bandon, Co. Cork and Bagenalstown, Co. Carlow.  John Noel O'Brien - a certified public accountant - joined the auditing and accounting side of the practice as a partner. 

(c) The service and the market

4.	The service involved in this notification concerns the provision of auditing and accounting services, primarily to farmers, as an ancilliary business to that of agricultural consultancy services carried on by the original partners at three locations. These are situated in Fermoy and Bandon, Co. Cork and Bagenalstown, Co. Carlow. There are a number of other accountancy firms located in each of these towns as well as those located in neighbouring towns and also Cork city, in the case of the two Co. Cork locations. The market therefore is for the provision of auditing and accounting services in these regions. 

(d) The arrangements

5.	The notified partnership agreement was made on 4 August 1995, but  commenced as and from 1 April 1994, to establish a partnership to include the two original partners in Collins, Butler & Company and the new partner John Noel O'Brien under the new title of Collins Butler O'Brien. The business will be carried on at the locations used by the former partnership at Fermoy and Bandon, Co. Cork and Bagenalstown, Co. Carlow. The capital and assets of the new partnership will be those of the original firm - Collins, Butler & Company and the capital will continue to be divided between them in the same proportion as their contributions. 

6.	There are requirements covering the keeping of accounts and records, insurance, holidays and the obligations of the partners relating to the promotion and running of the partnership. The two original partners will devote as much time as they see fit to the business and they are also allowed to engage in any other business that does not compete directly with the business of the partnership. The new partner - Mr. O'Brien  -  is required to devote all his attention to this business. The  consent of the majority of the partners is required for certain actions such as giving guarantees, entering into bonds, assigning or mortaging a share in the partnership to another person or to borrow money in the name of the partnership. The new partner also has an option to purchase an increased share of profits in the partnership. 

7.	Under clause 21.1 of the agreement, an outgoing partner shall not for 18 months after ceasing to be a partner be engaged in the practice of auditing or accounting within a ten mile radius of any of the premises of the partnership. In addition, the outgoing partner is restricted for the same period from soliciting any person who was a client of the partnership in the preceding two years. 

(e) Submissions of the parties

8.	The parties submitted, in support of their request for a certificate, that these arrangements did not have the object or effect of preventing, restricting or distorting competition in any part of the State. The arrangements were merely for the purpose of preserving the goodwill of the partnership business which should not have any effect generally on the distortion of competition. They parties also submitted arguments in support of their request for a licence, but these are not considered here. 

Assessment 

(a) Section 4(1)

9.	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

10.	 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 Richard A. Collins, Thomas M. Butler and John Noel O'Brien who are engaged as partners in the provision of auditing and accounting services for gain and are therefore undertakings within the meaning of the Act. The partnership agreement is therefore an agreement between undertakings. 

(c) Applicability of Section 4 (1)

11.	The Authority has indicated previously that it did not regard partnerships as being in contravention of the Act per se, but partnership arrangements might be in breach of the Act by virtue of certain restrictive clauses contained therein. The requirements in this agreement between the three partners to carry out certain functions relating to the management, promotion and operation of the business of the firm cannot be said to offend against Section 4 (1), since such obligations are essential for the operation of the business. 

12.	Clause 21.1 of the agreement contains two restrictions on any partner who leaves the partnership. The first one states that an outgoing partner shall not for 18 months after ceasing to be a partner be engaged in the practice of auditing or accounting within a ten mile radius of any of the premises of the partnership. In addition, the second restriction states that the outgoing partner is prevented for the same period from soliciting any person who was a client of the partnership in the preceding two years. The purpose of these restrictions is to protect the goodwill of the business in the event that one of the partners leaves the firm and sets up his own business in opposition to the partnership's business. The Authority has stated that restrictions to protect the existing goodwill of a partnership, in the case of the sale by one or more partners of their interest in the business, do not offend against Section 4(1) provided the restrictions are limited in terms of the duration, geographical coverage and subject matter to that which was necessary for the complete transfer of the goodwill. 

13.	The name and nature of the business, i.e. the provision of auditing and accounting services under the names of the three partners, the nature of the service - there are only three partners and consequently, each would be in personal contact with their individual clients, and the loyalty of their individual clients to each partner require the protection of the interests or goodwill of the business in the event that one partner leaves. The restriction in this agreement is for a term of 18 months, within a defined territory, namely a radius of ten miles of each of the three premises owned by the partnership and this in the Authority's view does not exceed what is necessary to protect the goodwill of the business. Consequently, clause 21.1 does not offend against Section 4 (1) of the Act. 

The Decision

15.	In the opinion of the Authority, Richard A. Collins, Thomas M. Butler and John Noel O'Brien are undertakings within the meaning of Section 3 (1) of the Competition Act, 1991 and the notified partnership agreement is an agreement between undertakings.  In the Authority's opinion, the notified agreement does not offend against Section 4(1) of the Competition Act, 1991.
The Certificate

16.	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 partnership agreement between Richard A. Collins, Thomas M. Butler and John Noel O'Brien of 4 August 1995, notified under Section 7 on 29 August 1995 (notification no. CA/30/95), does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey
Member
18  December, 1995.