Esso Petroleum Company Ltd v Milton
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SIMON BROWN,LORD JUSTICE THORPE,SIR JOHN BALCOMBE |
| Judgment Date | 05 February 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J0205-12 |
| Docket Number | No QBENI 96/1236/E |
| Court | Court of Appeal (Civil Division) |
| Date | 05 February 1997 |
[1997] EWCA Civ J0205-12
Lord Justice Simon Brown
Lord Justice Thorpe
Sir John Balcombe
No QBENI 96/1236/E
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF HIS HONOUR JUDGE THOMPSON
Royal Courts of Justice
Strand
London WC2
MR M HAPGOOD QC (Instructed by Messrs Irwing Mitchell of Hartshead, Sheffield) appeared on behalf of the Appellant
MR M SOOLE (Instructed by Anstey Sargent & Probert of Exeter, Devon) appeared on behalf of the Respondent
This is the plaintiffs' appeal by leave of this court against the order of Judge Anthony Thompson QC sitting at Exeter as a Judge of the Queen Bench Division on 21st June 1996 dismissing their application for summary judgment against the defendant for £167,885.81.
The relevant facts can be comparatively shortly stated. The appellants (Esso) need no introduction. The respondent was for many years the licensee of two of their service stations in Exeter, Alphington and Seabrook. Esso own over 1800 such garages and have some 734 licensees.
The respondent occupied and managed these two garages under successive three year licence agreements, the final ones being entered into respectively on 1st February 1994 for Alphington, and 1st October 1995 for Seabrook. There were additionally shop agreements in respect of each garage, under which the respondent was licensed to operate an Esso shop. Similar licence and shop agreements exist in relation to Esso's many other garages.
By condition 6 of, and schedule 5 to, each licence agreement Esso agree to sell to the licensee and the licensee agrees to buy from Esso his entire requirements of motor fuels, lubricants and so forth. The licensee is forbidden to sell petrol at prices greater than those notified to him by Esso as the maximum recommended retail prices and must himself pay Esso those same prices "less the Licence Margin." The Licence Margin therefore represents the licensee's gross profit on the forecourt sale of fuel out of which he has to pay all the expenses of operating the garage and out of which must come too, of course, any profit. Schedule 5 provides that the Licence Margin "will be the sum specified in the First Schedule hereto or such other sums as Esso may from time to time notify to the licensee,' and requires Esso to review that sum prior to the 1st November every year; if in Esso's opinion following that review, a change is required to the Licence Margin, they must notify the licensee of such change which then takes effect on 1st December of that year. Esso also "reserves the right, if necessary, to make adjustments to the Licence Margin … at any other time upon notification to the licensee."
Competition in the oil industry has increased steadily over recent years though the appearance of supermarkets and hypermarkets selling petrol at prices tending to undercut those of traditional garages. As part of their response to these pressures, Esso, in November 1995, notified the respondent that with effect from 1st January 1996 the Licence Margin would be reduced and his shop rentals would be increased. On 12th December the respondent wrote objecting: he complained that the proposals were "at best unworkable, and at worst impossible." Nevertheless on 1st January 1996 the shop rental for the Alphington garage was increased from £25,200 to £39,396 and the Licence Margin for both garages was reduced from 1.19p per litre to 1.1p, and then later, with effect from 15th February 1996, from 1.1p to .75p. All these changes were part of what was called Esso's " Price Watch" initiative, and licensees were provided with a document outlining the savings which Esso believed could be achieved under a scheme known as "Best Practice."
On 29th March 1996 the respondent was told by Esso of a further proposed rental increase to take effect on 1st May.Put shortly, his case is that he could not continue to operate these two garages profitably on the ever more stringent financial terms Esso were imposing, so that he regarded the business relationship between them as being over. He was, he said, staring bankruptcy in the face. How precisely the relationship ended was as follows. Between 1st and 9th April 1996 Esso made nine fuel deliveries to Alphington, three to Seabrook. It is the contractual price of those deliveries totalling £167,885.81 that forms the subject matter of Esso's claim in this action. Routinely such deliveries are paid for under direct debit arrangements. This, indeed, was expressly required by paragraph 2 of schedule 5 in these terms:
"The licensee agrees to make payment to Esso for the motor fuels, lubricants, anti-freeze and any other products supplied by Esso on or before delivery as Esso may from time to time require and any concession granted by Esso may be withdrawn at any time. Payment will be made by banker's direct debit or in such manner as Esso may from time to time require."
Pursuant to that provision the respondent had issued direct debits mandates to his bank, the last such being dated 20th October 1995 in these terms:
"I instruct you to pay direct debits from my account at the request of Esso Petroleum Company Limited. The amounts are variable and are to be debited on various dates. … I will inform the bank in writing if I wish to cancel this instruction. I understand that if any direct debit is paid which breaks the terms of this instruction, the bank will make a refund."
The respondent cancelled that instruction on 9th April 1996. That was the Tuesday immediately following the Easter Bank Holiday which must account for the larger than usual number of deliveries for which payment was outstanding: ordinarily the licensee's bank account would be debited just two days after any given delivery.
In the result Esso on 11th April gave the respondent notices purportedly terminating each of his licence agreements —I say purportedly because a dispute arises as to whether the agreements had or had not by then already been terminated in law by the respondent's cancellation of the direct debit mandate and his failure to pay for the April deliveries.
On 16th April Esso issued their writ in this action, and in response to a defence and counterclaim, applied for summary judgment under RSC Order 14. On 21st June the respondent was granted unconditional leave to defend and the following month amended his defence and counterclaim. Esso now appeal.
Esso's claim is admitted. It could hardly be otherwise. The respondent counterclaims, however, damages for repudiatory breach of contract and those damages he seeks to set off in extinction of his admitted debt to Esso. Esso dispute his right to do so.
Mr Hapgood QC for Esso advances four substantially independent arguments why the respondent should be denied leave to defend. Three are directed to the fundamental proposition that equitable set-off is simply not available to the defendant here; the fourth is that the counterclaim in any event fails to disclose a properly arguable case; it is not, submits
Mr Hapgood, a credible counterclaim for a sum comparable to the admitted debt.
The Counterclaim
It is, I think, helpful before turning to the important questions which arise regarding the availability of equitable set-off to indicate something at least of the essential nature of the counterclaim and, indeed, to reach a basic view upon its cogency. What the counterclaim comes to is this. There was, submits Mr Soole for the respondent, a term to be implied into these various agreements that the shop rents and Licence Margins should not be adjusted to such a level as would prejudice the licensee's ability to operate and manage his garages at a reasonable, or indeed any, profit. Esso breached that term. The respondent was in effect driven out of business. That was a repudiatory breach which the respondent by cancellation of his direct debit mandate accepted. True, by taking that step the respondent was not apparently intending to put an end to the contract. On the contrary, as he himself has deposed:
"I … required the tanks at both sites to be full as I believed that if I stopped my direct debit mandate I would need time to negotiate with Esso and had no wish to antagonise them further by closing either site or having fuels delivered from another source. We worked as normal over the bank holiday weekend. I was disappointed that we were not as busy as I had expected. After a great deal of soul-searching and talking to Sandra, my wife, I decided to go for broke and make one last desperate attempt to force Esso to acknowledge that there was a problem with what they were attempting and try and get them to recognise the dispute between us and to enter into a dialogue."
That intention, however, Mr Soole submits is immaterial. Whatever subjectively the respondent hoped and intended, cancellation of his mandate represented an unequivocal overt act inconsistent with the continuing subsistence of the contract. In law, therefore, it operated as an election to treat the contract as at an end. In support of this argument Mr Soole relies upon three House of Lords' authorities — Scott v Jardine (1882) 7 AC 345, China National Foreign Trade Transportation Corporation v Evlogia Shipping Co. SA of Panama [1979] 1 WLR 1018 and Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 LR 391. Accordingly the notices which Esso served on the 11th April 1996 were of no affect: the agreements had already been determined. Those notices, I should perhaps record, were given under the terms of schedule 8 to the Licence...
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