Esso Petroleum Co Ltd v Customs and Excise Comrs

A promotional article is not sold merely because a customer becomes contractually entitled to receive it after buying another product. In its primary legal sense, a sale requires the transfer of property in goods for money consideration. A collateral promise to supply an article in consideration of entering another contract does not satisfy that requirement.

Commercial promotional material may nevertheless create legal relations. The court considers its language, setting and purpose objectively. Descriptions such as “free” or “gift” do not determine the transaction’s legal character.

A petrol company promoted sales through World Cup coins. Participating retailers were instructed to provide one coin whenever a motorist bought four gallons of petrol. The Commissioners assessed purchase tax of about £200,000 on the basis that the coins were goods produced in quantity for general sale within Group 25 of Schedule 1 to the Purchase Tax Act 1963.

The Vice-Chancellor held that the coins were produced for sale: [1973] 1 W.L.R. 1240. The Court of Appeal reversed that decision and declared that the coins were not chargeable goods: [1975] 1 W.L.R. 406. The Commissioners appealed. The central questions were whether the promotion created contractual rights to the coins and, if so, whether their supply amounted to a sale.

1. Appeal dismissed by a majority of four to one. The Court of Appeal’s declaration that the coins were not chargeable goods under the Purchase Tax Act 1963 was affirmed. The Commissioners were ordered to pay the company’s costs.

2. Lord Simon of Glaisdale, with whose analysis Lord Wilberforce agreed, concluded that the promotion created legal relations. It was conducted for commercial advantage and was designed to influence motorists’ choice of petrol. A motorist who noticed the placard, relied upon it and bought the required petrol accepted an offer of a coin. Lord Fraser of Tullybelton agreed that the motorist acquired a contractual right, although he dissented on whether the transaction was a sale.

3. Lord Simon analysed the arrangement as a collateral contract. The retailer promised a coin in consideration of the motorist entering the principal contract to buy petrol. The placard could operate as an offer because the considerations which ordinarily make an advertisement or display only an invitation to treat did not prevent the retailer from controlling or withdrawing the coin offer.

4. Viscount Dilhorne and Lord Russell of Killowen considered that the promotion created no contractual obligation concerning the coins. They emphasised the coins’ negligible intrinsic value, the language of gift and the practical commercial incentives ensuring delivery. Those circumstances rebutted or prevented any inference of contractual intention. Lord Russell cautioned that the conclusion did not give promoters unrestricted freedom to withdraw offers involving substantial benefits.

5. The decisive basis shared by the four Lords dismissing the appeal was that, even if the coin was supplied under a contract, it was not sold for money. Per Lord Simon and Lord Russell, “sale” in Group 25 bore its primary legal meaning, reflected in section 1 of the Sale of Goods Act 1893: a transfer or agreement to transfer property in goods for money consideration called the price. The consideration for the coin was the motorist’s entry into the separate petrol contract. No part of the petrol price was apportioned to the coin.

6. Per Lord Simon and Lord Russell, the extended definition of “purchase” in section 40(1) of the Purchase Tax Act 1963 did not enlarge “sale” in Group 25. That definition served the distinct purchase-tax machinery governing acquisitions by retailers from wholesalers. The coins therefore fell outside Schedule 1.

7. Lord Fraser dissented. He regarded the petrol and coin as articles obtained in one transaction for an inclusive price. He would have allowed the appeal and held the coins chargeable.

1. House of Lords: The Commissioners’ appeal was dismissed by a majority of four to one. The Court of Appeal’s order was affirmed, and the Commissioners were ordered to pay the respondent’s costs.

2. Court of Appeal: Lord Denning MR, Stephenson LJ and Lane LJ concluded that the coins were not produced for sale and declared them not chargeable under the Purchase Tax Act 1963: [1975] 1 W.L.R. 406.

3. High Court, Chancery Division: Sir John Pennycuick V-C held that the coins were produced for sale: [1973] 1 W.L.R. 1240.