Shell UK v Lostock Garage Ltd

Shell UK Ltd v Lostock Garages Ltd [1976] 1 WLR 1187

Competition law – Restraint of trade – Agreements

Facts

The defendant was a small garage which was tied to Shell along with two other neighbouring garages, by way of a solus agreement. There was a petrol price war in 1975, during which Shell had a support scheme that enabled them and their partner garages to sell for 70p per gallon. However, in line with the terms that had been agreed by the parties, Shell restricted the defendant garage to sell for no less than 75p per gallon and as such, their sales sold dramatically, by 44,000 gallons in a year. As such, the defendant purchased their fuel elsewhere and Shell sought for an injunction to prevent them from doing so. The defendant garage claimed that Shell had unreasonably restricted their trade. The judge during the initial trial found that Shell could not enforce the contract and awarded the defendant damages. Both parties appealed this decision.

Issue

The court was required to consider whether the imposition by Shell on to the defendant garage constituted an unreasonable restriction on the defendant. If so, the court may enable the defendant to terminate the original agreement and to seek supply from another party under better contractual terms.

Decision/Outcome

The court dismissed the appeal and cross-appeal of the parties. It was found that the agreement was unreasonable for as long as the agreement infringed upon the defendant garage, but was not unreasonable at its inception. However, it should be noted that there was no implied contractual term that enabled the defendants to terminate the original agreement.