Competition Authority Decision of 19 May 1994 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification no. CA/7/94  ‑  James and Hilda Underwood/Ye Olde Coopers Inns Limited

Decision No. 330

Introduction

1.	An agreement between James and Hilda Underwood (the vendors) and Ye Olde Coopers Inns Limited (the purchaser) for the sale of a licensed premises, restaurant and bed and breakfast business at Killinick, Co. Wexford, known as Ye Olde Coopers Inn (Coopers), to the purchaser was notified to the Competition Authority on 11 March  1994, with a request for a certificate.

The Facts

(a)	The subject of the Notification

2.	The notification concerns an agreement, dated 17 September 1993, for the sale by the vendors of the business, including the goodwill of Coopers licensed premises, restaurant and bed and breakfast, located at Killinick, Co. Wexford to Ye Olde Coopers Inns Limited. The agreement contained a non‑compete clause.

(b)	The Parties

3.	James and Hilda Underwood were, at the time of the agreement, the owners of a business which comprises a licensed premises, restaurant and bed and breakfast known as Coopers, and located at Killinick, Co. Wexford. Ye Olde Coopers Inns Limited, the purchaser, is a separate company and is not related in any way to the vendors.

(c)	The arrangements

4.	The notification relates to an agreement made in September 1993, for the sale of the business and goodwill of Coopers, Killinick, Co. Wexford. Clause 9 of the agreement prevented the vendors, for a period of three years from the date of the assurance, within a five mile radius of the premises or anywhere along the road from Rosslare Harbour to the roundabout at Drinagh, from becoming involved in the sale of intoxicating liquor, a restaurant business or a bed and breakfast business (provided the bed and breakfast exceeds four rooms or nine beds, whichever is the greater).

Subsequent Developments

5.	The Authority expressed some concerns regarding the duration of the non‑compete clause. In a letter to the Authority dated 3 May 1994, the purchaser agreed to reduce the duration of the clause from three years to two.
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 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 engaged for gain in the production, supply or distribution of goods or the provision of a service."  At the time of the agreement James and Hilda Underwood were the owners of the premises known as Coopers in Killinick, Co. Wexford. The business was operated as a licensed premises, restaurant and bed and breakfast, therefore the vendors were engaged for gain in the provision of services within the State and were undertakings within the meaning of Section 3(1). Ye Olde Coopers Inns Ltd. is also engaged for gain and is an undertaking. Consequently the notified arrangements constitute an agreement between undertakings.

(c)	Applicability of Section 4(1)

8.	In the Authority's opinion the simple sale of a business does not per se offend against Section 4(1). Thus the only issue which arose under Section 4(1) related to the non‑compete provision in clause 9 of the agreement. Under the terms of this clause the vendors were prevented, for a period of three years, within a radius of five miles from the premises or anywhere on the road between Rosslare Harbour and the crossroads at Drinagh, from becoming involved in any business which competed with that being sold. The Authority has given its view on non‑compete clauses in the sale of business agreements in a number of cases. In general the Authority considers that a period of two years is adequate to secure the transfer of the goodwill of the business.  As the parties have indicated that they will reduce the duration of the non‑compete clause from three years to two, in the Authority opinion, the non‑compete clause no longer offends against Section 4(1).

The Decision

9.	In the Competition Authority's opinion, the agreement dated 17 September 1993,  between James and Hilda Underwood  and Ye Olde Coopers Inns  Limited for the sale and purchase of the Coopers, Killinick, Co. Wexford, (notification no. CA/7/94), notified on 11 March 1994, under Section 7(2), constitutes an agreement between undertakings.  In the Authority's opinion, the restrictions in Clause 9 of the agreement, as amended by the letter of 3 May 1994,  are no more than is necessary to secure the transfer of the goodwill of the business. Consequently, in the Authority's opinion the agreement  does not offend against Section 4(1) of the Competition Act, 1991.

The Certificate

10.	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 of 17 September 1993, for the sale by James and Hilda Underwood of the licensed property known as Ye Olde Coopers Inn at Killinick, Co. Wexford, to Ye Olde Coopers Inns Ltd., (notification no. CA/7/94), notified on 11 March 1994, under Section 7(1), and amended by the letter of 3 May 1994, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick Massey
Member
19 May 1994