Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd

A solus supply agreement may engage the restraint of trade doctrine where its practical effect is to restrict an existing trader’s freedom, even though the restriction concerns trade at particular land. Ordinary restrictions accepted as part of a conveyance or lease may fall outside the doctrine.

A restraint is enforceable only if it affords adequate protection to the beneficiary’s legitimate interests and is reasonable between the parties and in the public interest. Commercial practice, equal bargaining power, consideration and the restraint’s duration are relevant. A tie lasting four years and five months was reasonable. A 21-year tie, unsupported by evidence of corresponding commercial need, was unreasonable. Incorporating that tie into a mortgage did not prevent scrutiny.

Esso entered into solus agreements under which Harper’s Garage undertook to obtain all motor fuel sold at two garages from Esso, keep the premises operating and procure any purchaser to assume the obligations. The Mustow Green agreement lasted four years and five months. The Corner Garage agreement lasted 21 years and was supported by a £7,000 loan and mortgage which could not be redeemed earlier.

Mocatta J granted injunctions enforcing the agreements. The Court of Appeal set the injunctions aside because the ties were restraints of trade and were unenforceable. Esso appealed, contending that the agreements were outside the doctrine because they regulated trade on particular land or, alternatively, were reasonable.

1. Disposition. The House unanimously allowed the appeal concerning the Mustow Green Garage and dismissed the appeal concerning the Corner Garage. The shorter tie was enforceable; the 21-year tie and associated mortgage restrictions were not.
2. Application of the doctrine. Lord Reid, Lord Morris of Borth-y-Gest, Lord Hodson, Lord Pearce and Lord Wilberforce agreed that the agreements were restraints of trade. Harper’s already owned or occupied the garages and surrendered an existing freedom to trade there. The total-requirements obligation, duty to remain open and restriction on transfer created a practical and substantially personal restraint. A covenant is not excluded merely because it regulates trading on particular land.
3. Property transactions. The Law Lords distinguished ordinary covenants accepted when land is acquired or leased. A purchaser or lessee who takes only the interest offered does not ordinarily surrender a pre-existing trading freedom. Lord Wilberforce treated accepted and normal commercial, contractual and conveyancing arrangements as generally outside the doctrine unless altered circumstances or an exorbitant feature require renewed scrutiny.
4. Reasonableness. Applying the principles in Nordenfelt v Maxim Nordenfelt Guns [1894] AC 535, the restraint had to provide no more than adequate protection for Esso’s legitimate interests and to be reasonable between the parties and in the public interest. The court should give substantial weight to commercial practice, consideration and bargains freely made by experienced parties of equal bargaining strength. The party seeking enforcement bears the burden of establishing reasonableness between the parties.
5. Duration. The four-year-and-five-month tie reasonably protected Esso’s legitimate interest in stable and economical distribution. The House rejected the Court of Appeal’s suggested inquiry into how quickly Esso could find an alternative site. The 21-year tie extended beyond reasonably foreseeable commercial conditions. Esso produced no evidence that so long a restraint afforded an advantage requiring protection beyond that achieved by a much shorter tie. The decision established no general maximum duration for solus agreements.
6. Mortgage. The mortgage and solus agreement formed one transaction designed to maintain the Corner Garage tie. Per Lord Wilberforce and Lord Pearce, an ordinary mortgage restriction ancillary to genuine security may fall within an accepted category, but the description of an instrument as a mortgage does not immunise independent trading restraints. The 21-year restriction did not protect the security and the mortgagor was entitled to redeem.

1. House of Lords: Allowed Esso’s appeal concerning the Mustow Green Garage and dismissed its appeal concerning the Corner Garage.
2. Court of Appeal: Reversed Mocatta J and set aside the injunctions, holding that the ties were unenforceable restraints of trade.
3. High Court: Mocatta J granted injunctions enforcing the agreements and dismissed Harper’s counterclaim.