Competition Authority v Beef Industry Development Society Ltd and Another (Case C-209/07)
| Jurisdiction | Ireland |
| Judge | Mr. Justice Kearns,Mr. Justice Fennelly |
| Judgment Date | 03 November 2009 |
| Neutral Citation | [2009] IESC 72 |
| Docket Number | [S.C. Nos. 394 and 406 of 2006] |
| Court | Supreme Court |
| Date | 03 November 2009 |
[2009] IESC 72
THE SUPREME COURT
Murray C.J.
Kearns P.
Denham J.
Fennelly J.
Finnegan J.
BETWEEN
AND
AND
TREATY OF ROME ART 81(1)
TREATY OF ROME ART 81(3)
EEC REG 1/2003 ART 1(1)
EEC REG 1/2003 ART 1(2)
HAY v O'GRADY 1992 1 IR 210 1992 ILRM 689 1992/2/502
TREATY OF ROME ART 234
COMPETITION AUTHORITY v BEEF INDUSTRY DEVELOPMENT SOCIETY LTD & ANOR 2009 AER (EC) 367 2009 4 CMLR 6
POWER COMPETITION LAW & PRACTICE 2001 PARA 23.42
SYNTHETIC FIBRES AGREEMENT, IN RE 1985 1 CMLR 787 OJ L 207/17 2.8.1984
APPLICATION OF STICHTING BAKSTEEN, IN RE 1995 4 CMLR 646 OJ L 131/15 26.5.1994
TREATY OF ROME ART 81(3)(B)
TREATY OF ROME ART 81(3)(A)
COMPETITION
Agreement between undertakings
Agreement to achieve rationalisation of industry - Overcapacity in market - Reduction of capacity - Imposition of levies - Restriction on activity of undertakings leaving industry - Appeal - Preliminary reference - Agreement anti-competitive - Whether agreement exempt from prohibition - Whether matter should be remitted to High Court - Hay v O'Grady [1992] 1 IR 210 applied - Competition Act 2002 (No 14) - Commission Decision 84/380/EEC - Commission Decision 94/296/EC - Council Regulation (EC) No 1/2003 - European Community Treaty, Article 81 - Matter remitted to High Court (394 & 406/2006 - SC - 3/11/2009) [2009] IESC 72
Competition Authority v Beef Industry Development Society Ltd
Facts: As a result of over-capacity in the Irish beef processing industry, a radical rationalisation was conducted following a study of the industry. Ten principal processors formed the Beef Industry Development Society Limited (BIDS) in 2002 which prepared a plan with a view to reducing processing capacity by 25%. Approval of the scheme was sought from the Irish Competition Authority pursuant to Council Regulation (EC) 1/2003. In 2003, the Competition Authority made an application to the High Court for a declaration that the BIDS agreement infringed Article 81 EC. The High Court dismissed the application of the Competition Authority and concluded that the BIDS arrangement did not breach Article 81 EC. On appeal to the Supreme Court, the Court referred questions to the Court of Justice in 2007 pursuant to Article 234 EC and the Court of Justice ruled that the agreement had its object of preventing or restricting competition pursuant to Article 81 EC. The Competition Authority contended inter alia that the trial judge had erred in law in his conclusions reached as to the efficiency gains pursuant to Article 81 (3) EC.
Held by the Supreme Court per Kearns P. (Murray CJ, Denham, Fennelly & Finnegan JJ. concurring), that the matter would be remitted to the High Court to conclude a fuller analysis of Article 81(3) EC. The trial judge was the best arbitrator to assess credibility and weight of evidence. It was important to note that the initiative giving rise to the scheme was far removed from more objectionable cartel practices and that BIDS had an open and transparent relationship with the plaintiff at all time. In addition, there were no specific rules on crisis cartels in the EC Treaties. If the trial judge was satisfied that the arrangements would allow consumers a fair share of the resulting benefits, it would not be necessary to establish with precision the exact value or magnitude of that benefit. The incorporation of restrictive covenants in an agreement designed to rationalise an industry could be regarded as indispensable if the reduction in capacity was a valid objective. Per Fennelly J. concurring: that it was for the High Court to reconsider the matter de novo having regard to the judgment of the Court of Justice.
Reporter: E.F.
JUDGMENT of Mr. Justice Kearns delivered the 3rd day of November, 2009
Judgment delivered by Kearns, J.
Against a background of manifest over-capacity in the Irish beef processing industry it became apparent in the last decade of the century just expired that a radical rationalisation and restructuring of the processing industry was required. A study carried out in 1998 (the McKinsey Report) at the joint request of the Irish Government and representatives of the beef industry concluded that there existed significant and substantial over-capacity in the industry and that such overhang had a serious cost factor attached to it. This was impeding the competitive nature of the industry in certain markets. The McKinsey Report recommended that an agreed plan from within the industry should be put in place with the objective of removing plants which had a current annual throughput in 1997 of 420,000 cattle. It was proposed that this scheme would be financed by those who would be in receipt of the resulting benefits. McKinsey concluded that it was necessary to reduce the number of processors from twenty to a figure between four and six. The report also recommended that the undertakings which were to remain in the sector (" the stayers") should compensate those forced to withdraw (" the goers"). In 1999, a taskforce set up by the Minister for Agriculture & Food came to similar conclusions and recommended that the processors should create a compensation fund. In accordance with those conclusions, the ten principal processors formed the Beef Industry Developments Society Limited (BIDS) in May, 2002. BIDS prepared a draft rationalisation plan which provided, inter alia, for a reduction in processing capacity of about 25%, the equivalent of an annual volume of about 420,000 head of cattle.
The present members of BIDS produce about 93% of the beef sold in Ireland. The object of BIDS is to implement the market study produced by the economic consultants and the report delivered by the Beef Taskforce which had equally concluded in 1999 that there was significant under-used slaughtering capacity in the beef industry, that there were considerable benefits to be gained from a rationalisation process leading to better matching of capacity with actual requirements and that the processing industry should create a special buy-out fund to facilitate the removal of surplus or obsolete capacity with a view to expediting the rationalisation of the industry.
A processor's profit level depends on capacity utilisation in the processing plant. Where there is higher utilisation of capacity, economies of scale are achieved, reducing processing costs. McKinsey proposed a solution whereby a compensation system would offer incentives to certain processors to exit the market. The report concluded that the processing industry would achieve significant cost benefits from the implementation of such a scheme which it estimated at £18 million. It also concluded that accompanying efficiency measures could result in cost benefits of a further £14 million.
The main features of the scheme for which BIDS was formed were as follows:-
(a) Goers killing and processing 420,000 animals per annum, representing approximately 25% of active capacity, would enter into an agreement with stayers to leave the industry and to abide by the following terms:-
(i) Goers would sign a two year non-compete clause in relation to the processing of cattle on the entire Island of Ireland.
(ii) The plants of goers would be decommissioned.
(iii) Land associated with the decommissioned plants would not be used for the purposes of beef processing for a period of five years.
(iv) Compensation would be paid to goers in stage payments by means of loans made by the stayers to the Society.
(v) A voluntary levy would be paid to the Society by all stayers at the rate of €2 per head of the traditional percentage kill and €11 per head on cattle kill above that figure.
(vi) The levy would be used to repay the stayers loans; levies would cease on repayment of the loans.
(vii) The equipment of goers used for primary beef processing would be sold only to stayers for use as back-up equipment or spare parts or sold outside the Island of Ireland.
(viii) The freedom of the stayers in matters of production, pricing, conditions of sale, imports and exports, increase in capacity and otherwise would not be affected.
While the BIDS arrangements were being drafted, BIDS sought approval for the scheme from the Irish Competition Authority under the arrangements which existed prior to the introduction of Council Regulation (EC) No.1/2003. That Regulation, in conjunction with the provisions of the Competition Act, 2002, wrought a significant change in the applicable legal regime throughout the EC. The obligation now fell on BIDS to self-assess whether the scheme did or did not contravene competition law. In June, 2003 the Competition Authority informed BIDS that it did not consider the BIDS arrangements and the exit agreement which it had made with Barry Bros., the second named defendants, to be compatible with Irish competition law. On 30 th June, 2003 the Competition Authority made an application to the High Court for a declaration that the BIDS agreements infringed Article 81 EC.
Article 81(1) EC provides that the following shall be prohibited as incompatible with the common market: " all agreements between undertakings, decisions by associations of undertakings and concerted practises which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the Common Market, and in particular those which:
(a) Directly or indirectly fix purchase or selling prices or any other...
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