Esso Petroleum Company Ltd v Harper's Garage (Stourport) Ltd

JurisdictionUK Non-devolved
JudgeLord Reid,Lord Morris of Borth-y-Gest,Lord Hodson,Lord Pearce,Lord Wilberforce
Judgment Date23 February 1967
Judgment citation (vLex)[1967] UKHL J0223-1
CourtHouse of Lords
Date23 February 1967
Esso Petroleum Company Limited
and
Harper's Garage (Stourport) Limited

[1967] UKHL J0223-1

Lord Reid

Lord Morris of Borth-y-Gest

Lord Hodson

Lord Pearce

Lord Wilberforce

House of Lords

Upon Report from the Appellate Committee, to whom was referred the Cause Esso Petroleum Company Limited against Harper's Garage (Stourport) Limited, that the Committee had heard Counsel, as well on Monday the 5th, as on Tuesday the 6th, Wednesday the 7th, Thursday the 8th, Monday the 12th, Tuesday the 13th, Wednesday the 14th, Thursday the 15th, Monday the 19th and Tuesday the 20th, days of December last, upon the Petition and Appeal of Esso Petroleum Company Limited of and whose registered office is situate at Victoria Street, Westminster, S.W.1, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 23d of February 1966, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Harper's Garage (Stourport) Limited, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled. That the said Order of Her Majesty's Court of Appeal of the 23d day of February 1966, complained of in the said Appeal, be, and the same is hereby, Reversed except as to Costs so far as regards the Mustow Green Garage Agreement, and that the Judgment of the Honourable Mr. Justice Mocatta, of the 15th day of June 1965, thereby in part set aside, be, and the same is hereby, Restored so far as regards the Mustow Green Garage Agreement: And it is further Ordered, That the said Order of Her Majesty's Court of Appeal of the 23d day of February 1966, complained of in the said Appeal, be, and the same is hereby Affirmed so far as regards the Corner Garage Agreement, and that so far as regards the said Corner Garage Agreement the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is also further Ordered, That there be no Costs of the Appeal to this House.

Lord Reid

My Lords,

1

The Appellants are a large company whose most important product is Esso petrol most of which is sold by them to garages and filling stations for resale to the public. The Respondent Company own two garages: they contracted with the Appellants under what are know as solus agreements and bound themselves for the periods of those agreements inter alia to sell at their garages Esso petrol and no other. When cheaper "cut price" petrol came on the market they began to sell it and ceased to sell Esso petrol. The Appellants then raised two actions, now consolidated, to prevent this: they sought injunctions to restrain the Respondents from buying other than from them any motor fuel for resale at these garages. On 17th March, 1955 Mocatta, J. granted an injunction, but on appeal the Court of Appeal set aside this order on the ground that the ties in these agreements were in restraint of trade and were unenforceable. The Appellants now maintain first that these ties were not in restraint of trade and secondly that, if they were, they were in the circumstances valid and enforceable.

2

The earlier agreement related to the Corner Garage, Stourport, and was to remain in force for 21 years from 1st July, 1962. But, as the case with regard to it is complicated by there being a mortgage in security for money lent by the Appellants to the Respondents, I shall first consider the second agreement which related to the Mustow Green Garage near Kidderminster. This agreement was to remain in force for four years and five months from 1st July, 1963. It appears that the Appellants had a similar agreement with the previous owners of that garage and that this period was chosen because it was the unexpired period of that earlier agreement.

3

The main provisions of the Mustow Green agreement are that while it remained in force the Respondents agreed to buy from the Appellants their total requirements of motor fuels for resale at that garage and agreed to keep it open at all reasonable hours for the sale of Esso Motor Fuels and Esso Motor oils, and in return the Appellants agreed to sell to the Respondents at their wholesale schedule price at the time of delivery, and to allow a rebate from that price of one penny farthing per gallon payable quarterly. There were a number of other provisions with regard to advertising, service at the garage etc. which I shall not specify because they do not appear to me to assist in determining the questions at issue. But there are two other provisions which I must notice. If the Respondents wished to dispose of the garage they were not to do so except to a person who agreed to be substituted for them for all purposes of this agreement. If the agreement is otherwise unobjectionable I do not think that this provision can invalidate it because it was only by some such means that the Appellants could ensure that their petrol would continue to be sold at this garage for the full period of the agreement. The other is a provision for retail price maintenance which the Appellants at that time inserted in all their numerous tieing agreements with garages and filling stations. Shortly before the present action was raised the Appellants intimated that they would not enforce this clause against any of their tied customers. The Respondents were in favour of retail price maintenance and their original defence was that this change of policy by the Appellants entitled them to rescind the whole agreement for the tie. This defence was rejected by Mocatta, J. and it has not been maintained before your Lordships.

4

So I can now turn to the first question in this appeal—whether this agreement is to be regarded in law as an agreement in restraint of trade. The law with regard to restraint of trade is of ancient origin. There are references to it in the Year Books and it seems to have received considerable attention in the time of Queen Elizabeth I. But the old cases lie within a narrow compass. It seems to have been common for an apprentice or a craftsman to agree with his master that he would not compete with him after leaving his service, and also for a trader who sold his business to agree that he would not thereafter compete with the purchaser of his business. But no early case was cited which did not fall within one or other of these categories. And even in recent times there have been surprisingly few reported cases falling outside these categories in which restraint of trade has been pleaded: we were informed by Counsel that there are only about forty English cases which can be traced. On the other hand there is an immense body of authorities with regard to the two original categories. I have not found it an easy task to determine how far principles developed for the original categories have been or should be extended.

5

The most general statement with regard to restraint of trade is that of Lord Parker in Commonwealth of Australia v. Adelaide Steamship Company [1913] A.C. 781 at page 794. He said:

"Monopolies and contracts in restraint of trade have this in common, that they both, if enforced, involve a derogation from the common law right in virtue of which any member of the community may exercise any trade or business he pleases and in such manner as he thinks best in his own interests".

6

But that cannot have been intended to be a definition: all contracts in restraint of trade involve such a derogation but not all contracts involving such a derogation are contracts in restraint of trade. Whenever a man agrees to do something over a period he thereby puts it wholly or partly out of his power to "exercise any trade or business he pleases" during that period. He may enter into a contract of service or may agree to give his exclusive services to another: then during the period of the contract he is not entitled to engage in other business activities. But no one has ever suggested that such contracts are in restraint of trade except in very unusual circumstances, such as those in Young v. Timmins (1831) C. & J. 331 where the servant had agreed not to work for anyone else but might have been given no work and received no remuneration for considerable periods and thus have been deprived of a livelihood: the grounds of judgment may not now be correct but I think that the case was rightly decided.

7

That Lord Parker cannot have intended those words to be a definition is I think made clear by a passage lower on the same page of the report:

"Contracts in restraint of trade were subject to somewhat different considerations. There is little doubt that the common law in the earlier stages of its growth treated all" (my italics) "such contracts as contracts of imperfect obligation, if not void for all purposes; they were said to be against public policy in the sense that it was deemed impolitic to enforce them."

8

He certainly never supposed that all contracts which by obliging a man to act in one way (e.g. as a servant) prevented him from doing other things had ever been held to be of imperfect obligation or against public policy.

9

The leading case of Nordenfelt v. Maxim Nordenfelt Guns [1894] A.C. 535 fell within the old categories, and it may be misleading to take the well-known passages out of context and try to apply them to cases of quite different nature. Lord Macnaghten said at page 565:

"The public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of...

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