Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd

A restraint of trade in a composite lease and lease-back transaction must be judged in its commercial setting. Its reasonableness depends on adequate protection for the beneficiary, compensating benefit for the party restrained, and the public interest. A long petrol tie may therefore be valid where it forms part of a fairly priced rescue transaction, preserves trading, and permits the dealer to leave at contractual break dates.

Inequality of bargaining power alone does not found equitable relief. Equity requires an unconscionable use of superior power, coercion, oppression, or analogous misconduct. An objectively unreasonable term is insufficient. A claim for equitable rescission may also be barred by laches where the claimant delays despite knowledge of the material facts and the other party changes its position.

The company owned and operated a garage and petrol filling station. It was in serious financial difficulty and subject to an existing petrol tie in favour of Total Oil. In 1969, following negotiations in which the company and its proprietors received independent legal advice, it granted Total a 51-year lease for a premium of £35,000. Total granted Mr and Mrs Lobb a 21-year lease-back containing an exclusive petrol tie and break clauses.

The Deputy High Court Judge held that the tie was an unreasonable restraint of trade but severable from the remainder of the transaction. He rejected the other grounds for setting aside the agreements. The appellants challenged severance and sought equitable rescission for unequal bargaining power. Total cross-appealed against the finding that the tie was void.

1. The appeal was dismissed and the cross-appeal allowed unanimously. Dillon and Dunn LJJ each gave reasons, and Waller LJ agreed. The petrol tie was a restraint of trade, notwithstanding that the lease-back was granted to the company’s proprietors rather than the company. The lease and lease-back were a single transaction, and the use of the proprietors as lessees was a device which could not avoid the doctrine.

2. The 21-year tie was nevertheless reasonable. The court applied the ordinary requirement that a restraint be reasonable between the parties and in the public interest. Total had paid market value for a long lease; the arrangement was intended to rescue the business and preserve a petrol outlet; the lessees could leave at the contractual breaks; and the company was already subject to a valid tie for several more years. These circumstances justified the restraint and did not make it contrary to public policy. The court applied the approach in [1968] AC 269 and treated the benefits and consideration received as material, consistently with [1975] AC 561.

3. It followed that severance did not arise for decision. The court nevertheless stated that, if the tie had been invalid, it could have been excised. The main consideration was the premium for the 51-year lease and the rent payable under the lease-back, not the tie alone. The remaining transaction would have remained supported by consideration and commercially intelligible.

4. Equity did not require Total to prove that the transaction was fair, just and reasonable merely because the parties had unequal bargaining power. Relief requires unconscionable conduct or an unconscientious exploitation of weakness. The unchallenged findings that Total had not acted unconscionably, coercively or oppressively defeated this ground.

5. In any event, a claim to set aside the agreements was barred by laches. The material difficulties were known shortly after the transaction, but proceedings were not commenced until 1979. Meanwhile Total had spent £19,000 improving the site with the claimants’ concurrence.

• Court of Appeal: Allowed Total’s cross-appeal and dismissed the appellants’ appeal. It held the petrol tie reasonable and refused equitable relief.
• High Court, Chancery Division: Mr Peter Millett QC, sitting as a deputy High Court judge, held the tie void as an unreasonable restraint of trade but severable. He otherwise upheld the lease and lease-back.