Esso Petroleum v Harper’s Garage

Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269

Tie in agreement for 21 years was an unreasonable restraint on trade

Facts

The appellant entered into two agreements for the supply of motor fuel to the respondents. The respondents agreed to a tie-in agreement not to resell motor fuels except in accordance with the appellants’ retail schedule prices, not to operate any discount scheme and to keep their garages open for reasonable hours. The period of agreement at one garage was 4 years and 5 months and at the other garage there was a solus agreement for 21 years and a mortgage with a tie covenant which forbade redemption for 21 years.

Issues

Thereafter, the appellants wrote to the respondents stating that they would not insist on the implementation of the resale price maintenance clauses in the contracts. The respondents replied that they deemed the agreements null and void by virtue of the removal of these clauses. The respondents began to sell another brand of petrol. The appellants sought injunctions. At first instance, judgment was given for the appellants. The respondents were successful in the Court of Appeal.

Decision/Outcome

The House of Lords held that the doctrine of restraint of trade applied to both garages. It was noted that the existence of a mortgage did not exclude the doctrine of restraint of trade. The shorter period of 4 years and 5 months was valid, so that the tie-in agreement. However, the longer period of 21 years went beyond any period for which developments were reasonably foreseeable and in the absence of evidence of some advantage to the appellants for which a shorter period would not be adequate, the agreement was void.