Competition Authority Decision of 17 July 1998 relating to a proceeding under Section 4 of the Competition Act, 1991.
									
Notification No. CA/383/92E - Minister for Tourism, Transport and Communications / Dublin Airport Restaurants Ltd.

Decision No. 514 

Introduction

1.	Notification was made by Aer Rianta cpt (as agent of the Minister) on 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), in respect of an exclusive licence granted by the Minister to Dublin Airport Restaurants Ltd. 

The Facts

	(a) Subject of the Notification

2.	The notification concerns the grant of an exclusive licence by the Minister to Dublin Airport Restaurants Ltd (DAR) to provide catering services (comprising meals, refreshments, alcoholic drinks, beverages, snacks etc.) in the Terminal Building of Dublin Airport.  Two related Agreements were notified, which together comprise the licence : (a) an agreement dated 22 December 1983 between the Minister and the Caterer, and a supplemental agreement between the two parties dated 20 June 1988.   

	(b) The Parties Involved

3.1	The parties to the Agreement, as originally notified, were the Minister for Tourism, Transport and Communications and Dublin Airport Restaurants Ltd. 

3.2	By virtue of the subsequent making of various Statutory Instruments under the Ministers and Secretaries Act, 1924, altering Ministerial names and functions, the licensor under the Agreement is now the Minister for Public Enterprise, a corporation sole under the Ministers and Secretaries Act, 1924.  

3.3	Aer Rianta, a public limited company, is the agent of the Minister for the purposes of the Licence and is responsible, pursuant to section 23 of the Air Navigation and Transport Act, 1950, for the management, development and operation of Dublin, Shannon and Cork Airports.  The sole shareholder, apart from ten holders of qualifying shares, is the Minister for Finance.  Services for which it is responsible include airport management, airport design and planning, construction and maintenance, security, ground handling, fire fighting and rescue, car parking facilities, shops and general catering services. The total turnover of the Aer Rianta group for the year ended 31 December 1995 was IR£212.509m.   

3.4	SSP is a wholly‑owned subsidiary of an Irish holding company, Cheyenne Limited, which in turn is a wholly‑owned subsidiary of Scandinavian Service Partners A/S, a Danish holding company, which is in turn owned by Compass Group plc, a publicly quoted UK company. Scandinavian Service Partners A/S operates airport management and food concessions through its airport terminal catering division at 41 airports in 10 countries. Many of these concessions are held exclusively, such as those at Manchester and Copenhagen airports.  The ultimate owner, Compass Group, is a leading world food‑service organisation, operating in 40 countries with over 100,000 employees.  There is no other company in the Compass Group competing in Ireland in the market affected by the arrangements or in any related market.

3.5	The total turnover of SSP for the year ended 30 September 1995 was £9.1m.  Net total turnover of the Compass Group, the Group to which SSP  belongs, for the year ended 30 September 1995, was IR£1,505.8m. 
 
	(c)	The Relevant Market

4.1	The catering services provided by the Caterer involve the preparation and sale of hot and cold meals, refreshments, alcoholic and non‑alcoholic drinks, beverages, snacks, ice‑cream and sandwiches. The Licence concerns the provision of these services at a number of locations in the terminal building at Dublin Airport.

4.2.1	The parties indicated the possibility of two related markets being affected by the Licence Agreement:

	(a)    the market for the provision of contract group catering services in
        Ireland (possibly limited to a sub‑market for the provision of such
        services in airport terminals); and

	(b)     the market for the provision of catering services to the public in the
         vicinity of Dublin Airport.

4.2.2	As regards the market for contract group catering services generally, the parties drew attention to the definition adopted by the Authority in its Decision No. 29, John D Carroll Catering/Sutcliffe Catering Limited,  i.e. "the provision of onsite catering to offices, schools, factories and other establishments”; in that Decision, the Authority concluded that the relevant geographic market was the State.  The parties claimed that the only alternative to a contract catering licence, open to Aer Rianta, would be to provide the necessary catering services itself.  (In fact, this is what it did until it awarded the Licence to the Caterer in 1983.  However, the services were operated at a significant loss and Aer Rianta now prefers to grant concessions in respect of such services to third parties rather than provide the services itself.).  The parties also drew the Authority’s attention to the European Commission Decision of 28 April 1982 in Accor/Wagon Lits which, inter alia, distinguished motorway catering from “normal” contract catering in that it provided for a specific and captive clientele.

4.2.3	As to the alternative market definition (the provision of catering services to the public in the vicinity of Dublin Airport), the parties cited the Authority's Notice on Shopping Centre Leases of September 1993 and a number of its decisions relating to supermarket leases, viz. "The relevant geographic market for each shopping centre covers a much wider area than the centre alone”.   On this reasoning, they claimed that, while some distinctions might be drawn between restaurants located in a shopping centre and those located in an airport terminal, nevertheless the geographic extent of the market in which the Caterer is operating, insofar as relations with actual or potential customers are concerned, is not confined to Dublin Airport, but extends to the vicinity of the airport, including Dublin City (which is located only about 20 minutes drive from the airport).  If, therefore, the market were, on this basis, to be defined as the provision of catering services to the public in Dublin Airport and its environs, then a very large number of alternative services are available within that area. Although only a small number of alternative catering outlets are located in the airport complex itself (e.g., at the taxi rank and the cargo terminal), there is a very large number of such facilities within a short distance from the airport which can be availed of by members of the public en route either to or from the airport.

4.2.4	The Authority considers that the relevant market is even more confined than that claimed by the parties, or covered by either the Authority or EU Decisions cited by the parties.  In the Authority’s view, users are normally in an Airport Terminal Building for one of only two reasons - either because they are travelling themselves or because they are seeing off, meeting or otherwise accompanying air passengers.  For outbound traffic, passengers must check in an hour before departure, for local flights, and over 2 hours for intercontinental flights.  Outbound passengers, and in many cases the persons accompanying them, have limited choice about where to spend the intervening time.  The same applies to people meeting incoming passengers (who, in many cases may be delayed in any event).  The Authority is satisfied that customers of the public catering facilities in Dublin Airport, whether members of the public or airport/airline employees, comprise a quite specific and captive market.  The Authority considers, therefore, that the market in this case is that for catering services to the public within the precincts of the airport terminal building.
 
	(d)	The Notified Arrangements

5.1	The first of the notified agreements was made on 22 December 1983 and was stated to be for a period of 10 years.  On 20 June 1988, the parties made a supplemental agreement extending the term of the licence for a further five years, to terminate on 30 September 1998.

5.2	Under the agreement, the Minister granted a sole and exclusive right to the caterer to provide specified catering services in the Terminal Building at Dublin Airport, but that right does not extend to in-flight, outdoor or staff catering, or to vending machines.  In return, SSP is required to pay a minimum annual fee to the Minister for the use of the premises; it is also required, in the second and subsequent years, to pay an additional sum based on a percentage of turnover.  The Minister has power to inspect the company’s books or have them audited for this purpose.  The agreement further required SSP to invest at least £620,000 in redeveloping, refurbishing, adapting, and furnishing on a continuing basis, the catering premises, subject to the approval and supervision of Aer Rianta (for the Minister); SSP was also responsible for securing any necessary Planning Permission.  SSP was further required to employ a total of 64 staff, previously employed by Aer Rianta.  SSP cannot vary its meals etc. prices without giving prior notification to the Minister, and the Minister “maintains the right at all times to fix the prices or prohibit any variation in prices for good and sufficient reason”.  The Minister may also make regulations determining opening hours, classes of customer who may/may not be served, and for the maintenance of order and decorum.  SSP is precluded from employing any person deemed unsuitable by the Minister “for good and sufficient reasons”.  Finally, there are standard clauses of a “landlord/tenant” type, e.g. regarding uses of the premises, insurance, alterations, provision and use of energy, etc.

	(e)	Submission of the parties	
 
6.	Arguments in support of issuing of a Certificate

6.1	The Act does not apply

6.1.1	The parties submitted that the Act does not apply to the notified agreements because the Minister is not an "undertaking" within the meaning of Section 3 of the Act.  Section 3 of the 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 "

6.1.2	The Minister is a corporation sole under the Ministers and Secretaries Act, 1924. In Murdoch's Dictionary of Irish Law, a corporation sole is defined as "a corporation consisting of a single person whose corporate status arises from an office or function".  In contrast, a body corporate is defined in Murdoch's Dictionary as "a succession or collection of persons having in the estimation of the law an existence and rights and duties distinct from the individual persons who form it from time to time". On the basis of the latter definition, the parties submitted that the Minister is not a “body corporate" within the meaning of Section 3 of the Act.

6.1.3	The parties also submitted that the Minister is not an undertaking within the meaning of Section 3 because, given the nature of his office, he is not engaged in the "provision of a service".  His function is to make the Airport available to third parties (such as airlines and other service providers) so that they can provide their services to the public. (In doing so, he clearly needs to reserve the right to control the activities of such service providers, but this is simply part of his responsibilities as a public authority and does not involve the provision of a service within the meaning of the 1991 Act).
6.1.4 	The parties submitted that Section 4(1) does not apply to the notified agreements on the basis of the judgement of the European Court of Justice (ECJ) of 4 May 1988 in Case 30/87, Bodson v Pompes Funebres des Regions Liberees.  The case concerned the grant of an exclusive concession to a funeral company by a French local authority or commune to provide the external services for funerals within the territory of the commune. The ECJ, agreeing with the EC Commission, held that "Article 85 does not apply to contracts and concessions concluded between communes acting in their capacity as public authorities and undertakings entrusted with the operation of public services”.

	Given that Section 4(1) of the Act was adopted by analogy with Article 85(1), EEC Treaty, the parties submitted that the intended ambit of Section 4(1) should be understood in the light of the EC Commission and ECJ’s interpretation of the scope of Article 85(1).  Under the Licence the Minister, a public authority, is granting an exclusive concession to the Caterer, an undertaking entrusted with the task of serving the public at the Airport. The parties submit that in accordance with the Pompes Funebres judgement, Section 4(1) should not be regarded as applying to the Licence.
	 
6.2	The Licence does not offend against Section 4(1)

6.2.1	Sole and exclusive appointment

6.2.1.1	The parties submitted that the granting to the Caterer of an exclusive right to provide the catering services at the Airport did not and does not have as its object or effect the prevention, restriction, or distortion of competition within the meaning of Section 4(1)for the following reasons:

(a)	The appropriate time for assessing the effect on competition of the Caterer's sole and exclusive appointment is when the catering facilities were being established (i.e. when the Minister invited tenders for the provision of catering services at the Airport).  Pursuant to an open tender procedure and on the basis of objective and non‑discriminatory criteria, it was decided that the Caterer's tender should be accepted.

(b)	Before the contract was put out to tender in 1983, Aer Rianta had been providing catering services to the public in the terminal itself, involving  significant losses.  It became clear when the contract was put out to tender that the only basis on which tenders would be attracted would be if the successful tenderer was guaranteed the exclusive right to provide such services.
 
(c)	From a competition law point of view, the Licence is similar to a shopping centre lease of the kind considered by the Authority in its Notice on a Shopping Centre Leases of September 1993 and in its numerous decisions in relation to specific leases. The Authority takes the view that the granting of such a lease (which is necessarily exclusive to the lessee in so far as the leased premises are concerned) does not offend against Section 4(1).

The Authority has also taken the view that exclusivity clauses relating to such leases do not generally offend against Section 4(1).  A relevant example is Authority Decision No. 288 University College Dublin/The Governor and Company of the Bank of Ireland; that Decision related to the grant by University College Dublin of a sole concession to the Bank of Ireland to operate a bank branch on the university campus at Belfield, Dublin.  The parties submitted that it is very similar to the Licence which is the subject matter of the present notification, and that the views of the Authority in that and similar cases are equally relevant to the Licence in the present case.  

6.2.2	The Minister's right to control the Caterer's prices

6.2.2.1	The parties stated that it is common, in contract catering concessions, for the party granting the concession to reserve the right to control the prices charged by the concessionaire to users of the facility.  They take the view that the right to control prices in this way does not offend against Section 4(1).  First of all, the Caterer can, in a very real sense, be seen as providing a service on behalf of Aer Rianta as manager of the Airport.  Given the nature of that relationship, the parties argued that the right of the Minister to control the prices charged by the Caterer to users of the Airport is not restrictive of competition in any way which is prohibited by Section 4(1).
 
6.2.2.2	Secondly, the parties submitted that the form of price control which the Minister/Aer Rianta may exercise does not amount to the type of price‑fixing, whether vertical or horizontal, prohibited by Section 4(1).  The clause does not enable the Minister to control the Caterer's prices in a way which would benefit either of them.  Rather, its clear intention is to ensure that SSP remains price‑competitive in relation to other establishments providing similar services in the vicinity of the Airport.  Further, it limits the scope for abusive pricing which the Caterer might otherwise enjoy in relation to some "captive" users of the Airport who may find themselves in a situation where they need to avail of the Caterer's services because they do not have time to seek out alternatives in the vicinity of the Airport. In practice, the clause is operated by a process of consultation between Aer Rianta and the Caterer which is designed to ensure that the prices charged by the Caterer to users of its facilities are broadly in line with those of similar establishments in Dublin city. It can therefore be seen that the clause clearly operates in the interests of consumers and does not affect competition in the relevant market in a way prohibited by Section 4(1).

6.2.3	Other provisions

	Certain other provisions were included in the Licence to ensure that the facility is operated on terms designed to satisfy the needs of users of the Airport terminal, in particular to ensure the safety and security of the travelling public, and for the proper management generally of a State Airport.   

7.	Arguments in Support of Issuing a Licence

	The parties also made arguments in support of the granting of a licence.  As these are not considered relevant to the decision, they are not reproduced here.  
 
The Assessment

8.	(a)  Applicability of Section 4(1)

8.1	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”.

8.2	Section 3(1) of the 1991 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.

8.3	The definition issue has been touched on on a number of occasions by the Courts and the Authority.   In its Judgement in Deane v. VHI, the Supreme Court held that the words ‘for gain’ connote merely an activity carried on or a service supplied ........which is done in return for a charge or payment, and that VHI was, accordingly, an undertaking within the meaning of Section 3(1) of the 1991 Act.  In the more recent case of Carrigaline CTV v. Minister for Transport etc., the Court extended consideration of the definition issue to whether a Minister could be an undertaking under the Act.  Mr Justice Keane concluded that if the Minister in granting licences for transmissions is engaged in no more than a regulatory or administrative function then the fact that he imposes a charge for the granting of a licence does not in itself mean that he is engaged for gain. 

8.4	The Authority is satisfied that, in providing premises to the Caterer for the carrying out of business activity which s/he could equally carry out her/himself (and indeed did for several years), and charging an economic fee in return, the Minister concerned is not primarily engaged in a regulatory or administrative function.  S/he is, therefore, an undertaking for the purposes of this agreement, and the notified agreement is therefore an agreement between undertakings.  The agreement has effect within the State.

 9.	(b)  Assessment of agreement

9.1	The agreement notified contains standard restrictions and obligations on both parties which are necessary for the maintenance of a proper relationship in regard to the operation of the concession and the occupation of the premises.  These do not raise issues under the Competition Act.  

9.2	The agreement also provides for exclusivity in relation to the operation by SSP of the general catering concession.  However, Aer Rianta had, before the contract was put out to tender in 1983, itself been providing, as agent of the Minister, catering services to the public in the terminal building, and had incurred significant losses in so doing.  It became clear when the contract was put out to tender that the only basis on which tenders would be attracted would be if the successful tenderer was guaranteed the exclusive right to provide such services, i.e. on the same basis as Aer Rianta had been doing on the Minister’s behalf up to then.

 9.3	Moreover, the Authority has, in a number of previous decisions, accepted that the grant of exclusive facilities by a public authority/body does not of itself contravene Section 4(1) of the 1991 Act.  

9.4	For these reasons, the Authority is satisfied that the provision in the notified agreement granting exclusive rights to SSP does not contravene Section 4(1) of the 1991 Act.  
  
9.5	Section 4(1) of the 1991 Act prohibits, inter alia, any agreements which, in particular, “directly or indirectly fix purchase or selling prices”.  In this context, Clause G.4 of the Agreement reads as follows - 

	“The Caterer shall not vary the prices charged for meals refreshments alcoholic beverages or other commodities without giving prior notification to the Minister and in accordance with any statutory provisions or regulations from time to time in force regulating or controlling prices.  The Minister maintains the right at all times to fix prices or prohibit any variation in prices for good and sufficient reasons.”

	Prima facie, this would appear to preclude the Authority from granting a Certificate in respect of the agreement.  However, the specific prohibition in Section 4 (1)(a) on direct or indirect price-fixing exists as a particular example of a more general prohibition of agreements which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services.  It is, therefore, necessary to consider whether the Minister’s price-fixing power in this agreement has as its object or effect the prevention, restriction or distortion of competition.

9.6	In this context, the Authority sought, from the Department of Public Enterprise, information as to the reasons for the existence of such a power for the Minister in Clause G.4 of the agreement, whether and to what extent it had been used to date, and what would constitute, under the Clause concerned, “good and sufficient reasons” for the exercise of the Minister’s power.   

9.7	The Department has responded as follows :

	“The thinking behind the insertion of the price provisions in the SSP Agreement was, in fact, to prevent the concessionaire from exploiting the fact that effectively it had a captive audience at the airport rather than any intention to restrict competition.  Accordingly, we do not believe that the SSP Catering Agreement is anti-competitive.

	Neither the Minister nor Aer Rianta has used the power to fix prices as prior consultation between Aer Rianta, as agent of the Minister, and the Caterer has always taken place in the past before any increases in prices have been made.  The Caterer would be required to fully justify the need for any price increase before it was agreed.  Regular meetings are held between Aer Rianta and the Caterer to ensure that good quality service continues to be provided to the public.

	There are very good and sufficient reasons for the retention of the clauses in question..  The existence of the price provision in the Agreement protects the interest of the customer.  Aer Rianta is ultimately responsible for managing the airport and ensuring that the services provided to users of the airport reflect certain quality standards.”.

9.8	In its first Decision, Nallen/O’Toole, the Authority stated a number of general principles, and made clear that it considered that Section 4(1) of the 1991 Act had to be interpreted on a “rule of reason” basis.  Using the rule of reason in this case, the Authority has been assured that the relevant price clause in the agreement, far from having as its object the prevention, restriction or distortion of competition, was intended primarily to serve the common good, by keeping a rein on the prices which the caterer could charge, in other words to protect them against abusive pricing in the market served by the caterer, i.e. that of “captive” users of the Airport.  The Authority is satisfied that the Minister, in this instance, has the role of acting in the public interest, and is in a fundamentally different position to that of private parties.  The Authority further accepts that, in practice, the existence of the Minister’s power has not had an anti-competitive effect.

9.9	Finally, it is important, also, to bear in mind that this is not a horizontal price-fixing agreement, in that neither party to the agreement is a rival of the other, nor is it an example of resale price maintenance, since the Minister is not a supplier of the caterer.

The Decision

10.	In the Authority's opinion, the Minister for Public Enterprise and Scandinavian Service Partner Ltd. are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, and the notified agreement is an agreement between  undertakings.  In the Authority's opinion, the notified agreement does not have the object or effect of preventing, restricting or distorting competition in trade in any goods or services in the State or any part of the State.

The Certificate

11.	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 Licence Agreement notified under Section 7 of the Competition Act, 1991 on 30 September 1992 does not contravene Section 4(1) of the Competition Act 1991, as amended.

For the Competition Authority

Declan Purcell
Member
17 July 1998