Petrofina (Gt. Britain) Ltd v Martin
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE HARMAN,LORD JUSTICE DIPLOCK |
| Judgment Date | 17 December 1965 |
| Judgment citation (vLex) | [1965] EWCA Civ J1217-1 |
| Date | 17 December 1965 |
| Court | Court of Appeal |
[1965] EWCA Civ J1217-1
The Master of the Rolls
(Lord Denning)
Lord Justice Harman and
Lord Justice Diplock
In The Supreme Court of Judicature
Court of Appeal
From Mr Justice Buckley
MR RAYMOND WALTON, Q. C. and MR OLIVER LODGE (instructed by Messrs E. F. Turner & Sons) appeared as Counsel for the Appellants.
MR S. W. TEMPLEMAN, Q. C. and MR E. W. CHRISTIE (instructed by Messrs Allan Jay & Co., Agents for Messrs Potter? Brook, Taylor & Wild-goose, Matlock) appeared as Counsel for the Respondents.
Very few of the garages or filling stations in England and Wales are "free" to buy or to sell any brand of petrol they like. Most of them are "tied" to one or other of the Oil Companies who insist on their own brand of petrol being gold to the exclusion of all others. So as you go on your way you may Pass a garage or filling station which is tied to Shell, the next one to Easo, and so on. Each is tied by means of an agreement called a "Solus" Agreement. Under these Solus Agreements the Oil Company gives a financial inducement to the owner of that garage or filling station. The Company says: "We will charge you less than the wholesale price. We will give you a rebate of 1¼d. (or as the case may be) a gallon off the wholesale price if you will agree to take all your petrol from us and none from any of the other Companies". The owner agrees. He accepts the tie in return for the rebate. He signs the Company's printed form of Solus Agreement. Until recently it has been assumed by many people that these Solus Agreements are binding at law and that the Courts cannot inquire into the reasonableness of them. But this assumption has now been challenged. It is said that these Solus Agreements are contracts in restraint of trade and are not binding on the owner of the garage or filling station unless they are reasonable. Mr Justice Buckley has so held in the present case. His decision is reported in 1965, 2 Weekly Law Reports, p. 1299. But, in a parallel case, Mr Justice Mocatta has held the opposite. He holds that the doctrine of restraint of trade has no application to Solus Agreements and that the Courts cannot inquire into the reasonableness of them — see Easo Petroleum Co v. Harpers Garage, 1965, 3 Weekly Law Reports, p. 469. We have to decide which is right.
Before I go into the law, I must state the relevant facts. I will not go into all the details. They will be found set out in the report of the case below, 1965, 2 Weekly Law Reports p. 1299. Suffice it to say that at Calow near Chesterfield there is a garage now called Motorways. From 1957 to 1959 and thenfrom 1959 onwards it was tied to the Petrofina Company by means of two successive Solus Agreements and two successive mortgages containing similar restrictions. Under these agreements the owners of the garage were expected to sell 70,000 gallons a year over fifteen years, but they did not manage it. They only sold about 30,000 gallons a year: and at that figure they were incurring a big loss on petrol sales. The "break-even" point at this garage, that is, the sales of petrol 'which they must make to avoid a loss, is around 50,000 gallons a year. In view of this loss, the then owners entered into negotiations with a Mr Martin to sell him the garage. Mr Martin was minded to form a Company to take it over and make improvements. With improvements he thought he could make it pay its way. The sellers were, however, bound under the Solus Agreement to give the Petrofina Company the first refusal. They offered it to than for £16,000. The Petrofina Company refused. So the sellers sold it to Mr Martin for £16,000. They paid off the mortgage, thus leaving the property free from any charge. The sellers were, however, bound under their own Solus Agreement to get Mr Martin to sign himself a new Solus Agreement on his own account with the Petrofina Company. And that is what he did. On the 1st April, 1963, he signed the printed form of the Petrofina Company. The principal terms were these:
Mr Martin was to buy exclusively from the Petrofina Company all the petrol he required at the garage and would not buy from anyone else, see Clause 4(a). No price was mentioned but I am prepared to assume that it was intended to be the current wholesale price.
2. Mr Martin was to sell exclusively at the retail prices published by the Petrofina Company - Clause 4(b). This clause is not now enforceable — see Resale Prices Act 1964, but most dealers sell at the recommended or ruling prices — see Regent Oil Company v. Aldon Motors, 1965, 1 Weekly Law Reports, p. 956.
3. Mr Martin was to stock the lubricating oil of the Petrofina Company and to foster its sale (Clause 4(c)). He wasat liberty to stock the oil of other Companies, but was not to advertise their oil (Clause 4(a) and 7(b)). In the lubricating bay be was to use and sell exclusively the lubricating oil of the Petrofina Company (Clause 4(d)).
4. Mr Martin wag to get a rebate of 1-1/5d. on every gallon of petrol he bought from Petrofina (Clause 5).
5. Mr Martin was to keep the garage open at all reasonable times for the sale of petrol and oil and was to maintain an adequate stock (Clause 7(d) and (f)).
6. If Mr Martin was thinking of selling the garage he was to give the Petrofina Company the first refusal (clause 8). If they did not wish to buy, he was not to sell unless he first got the prospective buyer to enter into another Solus Agreement with the Petrofina Company to carry out all Mr Martin's obligations (Clause 9).
7. The Agreement was to continue for twelve years from 6th April, 1963, without any power on either side to determine it. If Mr Martin had sold 600,000 gallons of petrol during those twelve years, he could determine it thereafter by three months' notice. But, if he had not sold 600,000 gallons in those twelve years, he could not determine it until he had sold 600,000 gallons (Clause 10). That is about 50,000 gallons a year.
From the 6th April, 1963, to the 30th May, 1963, Mr Martin carried on the business but he found that in those seven or eight weeks he only sold petrol at the old rate of 30,000 gallons a year, and not at the 50,000 gallons a year which he hoped for. He might have done better if he had waited a little longer. But he did not wait. He was seduced away from Petrofina, by the charms of Easo. On the 30th May, 1963, he smashed the Fina globes at his garage and put on Easo globes. He filled the tanks with Easo petrol and sold Easo petrol to his customers. And on the 5th June, 1963, he signed a Solus Agreement with the Easo Petroleum Company for two years from 1st June, 1963 (whereas the Petrofina was twelve years) with a rebate of 1½d. a gallon (whereas PetrofinaWas 1-1/5d.)This new Solus Agreement with Easo was in the name of a new Company Which he formed called Wallis's (Calow) Limited. On the 11th June, 1963, Mr Martin agreed in writing to sell the garage to his new Company for £16,000. But before the conveyance was executed, the Petrofina Company brought this action claiming against Mr Martin an injunction to prevent him selling any other petrol than Petrofina and also preventing him from disposing of the garage: and they joined Wallis's (Calow) Limited as defendants. No doubt, by acting before the conveyance was executed, they hope to stop it, in the same way as Lord Sefton did with the Aintree Racecourse — see Sefton v. Tophams Limited, 1965, 3 Weekly Law Reports, p. 523. If once the new Company acquired the legal title to the garage, Petrofina Company would have no claim against the new Company because the Petrofina Company own no land in the vicinity — see London County Council v. Allen, 1914, 3 King's Bench, p. 642.
Mr Justice Buckley held that the Solus Agreement with Petrofina was invalid because it was in restraint of trade. So he declined to grant an injunction against Mr Martin or the new Company. The new Company have carried on the business selling Easo petrol. But it has been arranged that, pending this appeal, Mr Martin will not execute the conveyance to the new Company.
One thing I must notice at the outset. This is not a case where the Petrofina Company sold or let the garage to Mr Martin or lent him money on a mortgage of it. It is a case of a simple Solus Agreement whereby Mr Martin agreed to buy his petrol exclusively from the Petrofina Company and from no-one else. In other words, a covenant in "gross". The question is whether such an agreement is subject to the doctrine of restraint of trade. We were taken through the cases once more from Mitchel v. Reynolds (1711) 1 Peere Williams, p. 181, to the Mordenfelt case, 1894 Appeal Cases p. 535Att. Gen, for Australia v. Adelaide steamship Co., 1913 Appeal Cases, p. 781, and Morris v. saxelby 1916, 1 Appeal Cases, p. 608. In the result I takethe general principle to be this:
Every member of the community is entitled to carry on any trade or business he chooses and in such manner as he thinks most desirable in his own interests, so long as he does nothing unlawful: with the consequence that any contract which interferes pith the free exercise of his trade or business, by restricting him in the work he may do for others, or the arrangements which he may make with others, is a contract in restraint of trade. It is invalid unless it is reasonable as between the parties and not injurious to the public interest.
Mr Raymond Walton, Q. C. sought to limit the width of this principle by reference to the kind of restraint. He quoted Dr. Cheshire and Mr Fifoot's book on Contracts, p. 324, and said that contracts in restraint of trade are of three kinds: First, by an employee who agrees that, after leaving his employment, he will not compete against his employer: Second, by the...
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