Irish Competition Authority Decisions

1. Notification was made with a request for a licence under Section 4 of the Competition Act 1991 by Esso Ireland Limited on 19 December 1991 in respect of the standard Esso solus agreement with independent dealers, and its dealer loan equipment and dealer loan agreements, and its deed of charge/mortgage.

2. Notice of intention to take a favourable decision was published in 'The Irish Times' on 29 May 1992. There were no submissions from interested parties.

3. This decision concerns the standard Esso solus agreement, which provides for the exclusive purchase by an independent dealer of Esso motor fuels for resale, for a maximum period of ten years, and the following related agreements:

- the dealer loan equipment agreement, which relates to the provision of service station equipment on loan to the dealer;

- the dealer loan agreement, which is used when an interest-bearing loan is made available to the dealer for redevelopment of the outlet; and

- the deed of charge/mortgage, which is used to provide security for the loan to the dealer.

Each notified agreement is a standard agreement which Esso employs with the dealers in its independent dealer network throughout the State. While each independent dealer is a party to the solus agreement, not all dealers are party to the other three agreements.

4. Esso Ireland Limited is one of the major suppliers of motor fuels and oils in the State. It is a wholly-owned subsidiary of the Exxon Corporation of the USA. Esso is primarily involved in the marketing of petroleum products, which includes the supply and distribution of motor fuels to the motoring public through a chain of retail outlets. Esso imports its products, usually from an Esso refinery in the UK, through various Irish ports where it has storage facilities. From there, retail outlets are supplied by road tanker. The Esso retail network consists of a number of company owned outlets, mostly operated by Artane Service Station Limited, and several hundred dealer owned outlets which operate under the Esso brand.

5. Most of the Esso branded dealers purchase motor fuels from the company under exclusive supply agreements. The remaining dealers are not contracted to Esso, and purchase their motor fuels without being tied by formal supply agreements. The Esso dealer network accounts for more than half of the Esso branded sales volume. Esso dealer stations are located in almost every county in the State, and they have a wide range of annual sales (throughput). A higher proportion of company owned than dealer owned stations is located in the major centres of population. Esso exclusive (solus) dealers are independent resellers of motor fuels, and this operation may be combined with car repairs, car sales or a shop selling, among other items, grocery products.

6. The product with which the notified agreements are concerned consists of motor fuels, that is petrol and diesel for use in mechanically-propelled road vehicles.

7. While some motor fuels are sold direct by Esso to commercial users, and a large proportion is sold through Esso company owned outlets, this Decision relates only to sales of motor fuels though dealer owned outlets. Besides Esso, there are ten other suppliers to the dealer market in the State:

B.P. Ireland Ltd. Irish Shell Ltd.

Burmah Castrol Ireland McMullan Bros. Ltd.

Campus Morris of Fiddown

Conoco Ireland Ltd. Tedcastle Oil Products Ltd.

Estuary Texaco (Ireland) Ltd.

8. According to the Report of Enquiry into the Supply and Distribution of Motor Fuels by the Fair Trade Commission in 1989 (PL. 7951), total sales of petrol through retailers in 1988 were 1,090 million litres, while total retail sales of autodiesel were 187 million litres. In 1988, there were 3,227 retail petrol outlets, of which 447 were company owned, or 13.9%. The proportion of total petrol sales through company owned outlets was, however, 41.6%. 36.3% of dealer outlets sold less than 20,000 gallons of petrol per year (90,920 litres) and only 4.6% sold more than 200,000 gallons (909,200 litres). The respective figures for company stations were 4.1% and 57.2%. Company outlets had a higher average annual throughput than solus dealers, who had a higher average throughput than non-solus dealers. The average throughput of all outlets in Ireland was only about one-quarter of the EC average.

9. Each oil company sells motor fuels through independent dealers, both solus and non-solus, and almost all also own company stations.

10. Since dealer stations are located throughout the State, the appropriate geographic market in this case is the State.

11. Up to 30 September 1991, the motor fuels sector was subject to strict price control and to the provisions of the Restrictive Practices (Motor Spirit and Motor Vehicle Lubricating Oil) Order, 1981. Both the Order and price control were removed on the coming into force of the Competition Act on 1 October 1991.

(i) The standard Esso solus agreement

12. The standard solus agreement which Esso has with each of its independent solus dealers is the basic agreement, and it provides for the exclusive supply of Esso motor fuels for resale for a period not exceeding 10 years. It makes provision for an interest-free loan and provides for a rebate on fuels purchased. The loan is unsecured and the rebate earnings can be offset against the loan, which is the usual procedure. The agreement contains the following main provisions:

Clause 3(a) - The Dealer agrees with Esso 'To purchase all motor fuels required for consumption or sale at the Service Station exclusively from Esso for a period of ten years from the date hereof and not during the said period of ten years to purchase, receive or sell or knowingly permit to be purchased received or sold at the Service Station any motor fuels other than such as shall be purchased from Esso.'

Clause 1(c) - 'Motor fuels shall mean all motor fuels including motor diesel fuel....'

Clause 1(d) - 'The Service Station shall for all the purposes of this Agreement mean and include the said Service Station known as and any other Service Station or premises owned, occupied or used by the Dealer for the retail of motor fuels at the date of this Agreement or at any time during the continuance thereof within an area comprised by a circle having a radius of one mile from the said Service Station.'

Clause 2(a) - Esso agrees with the Dealer 'To sell to the Dealer at Esso's wholesale schedule price to Dealers ruling on the date of delivery the Dealer's total requirements of motor fuels for resale at the Service Station for a period of ten years from the date hereof.'

Clause 2(b) - Esso agrees with the Dealer 'To pay to the Dealer a loan of.... to assist the Dealer.... towards the cost of improvements at the Service Station consisting of....'

Clause 2(c) - Esso agrees with the Dealer 'To pay to the Dealer a rebate on motor fuels delivered by Esso.... calculated at the prevailing rebate rate....' (which is 0.156p per gallon, or 0.034p per litre).

Clause 3(e) - The Dealer agrees with Esso 'To take deliveries of motor fuels in quantities of not less than .... litres.'

Clause 3(f) - The Dealer agrees with Esso 'To operate the Service Station as far as possible in accordance with the principles of the Esso Dealer Co-operation Plan....'

Clause 3(j) - The Dealer agrees with Esso 'Not to sell or offer to sell the Service Station or the business carried on there during the said period of ten years without first giving Esso the opportunity to introduce a purchaser and to use the Dealer's best endeavours to ensure that any purchaser, assignee or transferee of the Service Station or the business will enter into an agreement with Esso similar to this Agreement including this clause.'

Clause 4(b)(ii) - 'In the event of Esso withholding, reducing or suspending deliveries.... the Dealer shall be free to purchase from other suppliers any quantities which Esso after request by the dealer fails to deliver....'

13. In respect of an option being exercised by the dealer upon the expiration of the Agreement to postpone repayment in respect of an unpaid balance of a loan, clause 7(e) states that 'The provision of this option herein shall not be deemed or construed to impose any present undertaking or obligation on the Dealer extending beyond the period of ten years from the date hereof and this Agreement shall be construed accordingly.'

14. The Esso Dealer Co-operation Plan, contained in the Schedule to the Agreement, contains the following clauses:

'5. To keep the Service Station open at all reasonable hours for the sale of Esso Motor Fuels and Esso Motor Oils.

6. To participate in advertising and sales promotion plans and provide a mailing list for circulation to customers and prospective customers.

7. To give preference to the sale of Esso Motor Oils and other products.'

15. The dealer equipment loan agreement is subsidiary to and dependent upon the solus agreement. Almost all dealers with a solus agreement are also party to the equipment loan agreement. Title to the equipment remains with Esso, and the loan is for a maximum period of 10 years. The agreement is used in tandem with the solus agreement when a dealer first signs, and thereafter when new or reconditioned equipment is being installed on site on a loan basis. Among the terms of the agreement are:

Clause 1(i) - 'Subject to the provisions of this Agreement Esso will loan for a period of .... years ('the loan period') commencing from the date of completion of installation as specified in the Schedule hereto the item of equipment ('the equipment') together with the cost of installation ('installation cost') as set out in the Schedule. The equipment shall remain Esso's property.'

Clause 3 - 'Esso may during the loan period without prior notice determine the loan of the equipment.... in the event of the Dealer ceasing for any reason whatsoever to occupy the Service Station or ceasing to carry out there the business of retailer of Esso Motor Fuels or failing to carry out any of the obligations hereunder or under any Supply Agreement....'

Clause 4 - 'The Dealer agrees with Esso:

(i) To keep the equipment in his possession and control at the Service Station and not to remove it to any other premises and to permit Esso Ireland Ltd. from time to time to inspect it and where the equipment includes or consists of storage or dispensing equipment to use such storage and dispensing equipment exclusively for the storage and supply of Esso Motor Fuels and to permit Esso Ireland Ltd.

(1) to take samples of the contents and

(2) to place a lock & seal on the tank during the continuance of this Agreement

and the Dealer undertakes not to interfere with or remove such lock or seal.'

16. The dealer loan agreement is used when an interest bearing loan is paid to the dealer for redevelopment. The loan is secured by mortgage and is repayable over a period not exceeding 15 years. The agreement is virtually identical to the Esso solus agreement, with the clauses contained in (i) above, including the 10 year exclusive purchasing clause. One additional provision is:

Clause 3(f) - The Dealer agrees with Esso 'To grant to Esso or its nominee as security for the loan and interest a .... mortgage on the Service Station....'

17. About one third of Esso solus dealers are party to the dealer loan agreement.

18. The deed of charge/mortgage is supplemental to the dealer loan agreement, and it is used to provide security for the loan advanced to the Dealer. Among its provisions are:

Clause 1(i) - 'In consideration of the sum of £.... paid by Esso to the Dealer.... the Dealer hereby covenants with Esso that the Dealer will repay the loan with interest as hereinafter provided to Esso on demand and in the meantime.... to pay to Esso equal monthly payments of £.... each....'

Clause 6 - 'The Dealer hereby attorns and becomes tenant at will to Esso of the Mortgaged Premises at a pepper corn rent during such times as the loan or any part thereof shall remain owing on this security but nothing in this clause contained shall prevent Esso from at any time entering on and taking possession of the Mortgaged Premises and so determining the tenancy hereby created.'

Second Schedule. Clause 2 - 'To occupy the Mortgaged Premises and personally to conduct and keep the same open for business as a retailer of motor fuels.'

Clause 3 - 'To purchase exclusively from Esso all motor fuels which the Dealer shall require for consumption or sale on the Mortgaged Premises or any other premises owned, occupied or used by the Dealer within an area comprised by a circle with a radius of one mile from the Mortgage Premises so long as Esso shall be ready to supply the same for a period of ten years from the date of the Loan Agreement and not during the said period to buy, receive or sell or knowingly permit to be bought, received or sold on the Mortgaged Premises or any other premises owned, occupied or used by the Dealer within an area comprised by a circle with a radius of one mile from the Mortgaged Premises any motor fuels other than such as shall be purchased from Esso.'

Third Schedule. Clause 4 - 'The Dealer will not without the previous consent in writing of Esso grant or agree to grant (whether in exercise or independently of any Statutory Power) any lease or tenancy of the Mortgaged Premises.'

19. All dealers with a loan agreement are also subject to the deed of charge/mortgage.

20. EEC Regulation No. 1984/83, of 22 June 1983, is a block exemption regulation which applies Article 85(3) of the Treaty of Rome to categories of exclusive purchasing agreements. It includes special provisions for service station agreements, that is for solus agreements and for agreements relating to company owned stations. The regulation entered into force on 1 July 1983 and it expires on 31 December 1997. [1]

21. The regulation applies to agreements involving only two parties whereby one party, the reseller, agrees with the other, the supplier, to purchase specified goods only from the supplier, or from a connected undertaking or one entrusted by the supplier with the sale of his goods.

22. In the case of agreements for the supply of petroleum-based motor vehicle fuels, or for these and other fuels, for resale in a specified service station, special commercial or financial advantages may be accorded by the supplier to the reseller. In such cases, the exclusive purchasing agreement may be for a period not exceeding ten years, and the reseller may be obliged not to sell fuels supplied by other undertakings. The reseller may also be obliged not to use lubricating oil supplied by other firms in equipment financed or made available by the supplier, but he may not be prevented from selling oil supplied by other firms. These exclusive purchasing agreements may refer to no other goods, nor to services (except in connection with the servicing of equipment owned or financed by the supplier). Some general provisions of the regulation also apply, such as permitting the reseller to be obliged to purchase minimum quantities of goods, to sell the goods under trademarks and to advertise. The benefits of exemption may be withdrawn by the Commission in a particular case where it considers that the conditions of Article 85(3) are not satisfied, where, for example, effective competition is lacking. There are special transition provisions for existing service station agreements. Service station agreements cannot be combined with general exclusive purchasing agreements involving the same parties.

23. Esso stated that the high proportion of sales through the dealer network emphasised the importance of the independent sector in the distribution of retail motor fuels. Thus Esso supported each dealer in maintaining and improving the business by providing investment funding commensurate with the volume potential of each station. The investment required to maintain or improve even a basic service station facility was substantial, and there was a need to build in safeguards to ensure that a reasonable return was achieved on the investment. The arrangements were beneficial to consumers in that they provided for the safe distribution of motor fuels to the motoring public, in a cost-effective and efficient manner.

24. Esso claimed that its investment policy was geared toward providing modern and purpose-built facilities which offered the highest standards of consumer service, by implementing a branded image at service stations. The considerable investment also had to ensure adherence to the safety and environmental legislation governing the industry. Each retail investment was considered a joint venture with the dealer which should be capable of generating an adequate financial return to both Esso and the dealer. The level of investment differed in each case, depending on the individual circumstances of the dealer, the physical aspects of the proposed development and the volume potential of the location. The minimum cost of a basic facility, according to Esso, was substantial, including tanks,pumps, pipework and tank gauges, civil works, a canopy and service station equipment. A modern, fully equipped station, with a car wash and a convenience store, would cost a considerable amount.

25. Esso claimed that the initial investment for even the basic facility would place an inordinate strain on the finances of the independent dealer. Independents generally did not have the capital resources or access to such resources to provide new facilities or develop existing facilities, and the available margin from trading was inadequate to fund such investment. Over the last five years, Esso had invested a large amount of money in the dealer network, and the investment programme was continuing.

26. Esso argued that, to safeguard its considerable investment in the dealer network, the economically viable period for the exclusive purchase agreement was ten years, because of the relatively low level of average throughput pertaining in Ireland. It noted that, when the agreement expired, the dealer was free to negotiate a new supply agreement with any wholesale supplier of his choosing. Competition among wholesalers for untied dealers was very intense and a significant amount of brand switching took place.

27. Esso maintained that the arguments in favour of having ten-year supply agreements in the retail motor fuel market had already been accepted by the EC, and had been ratified under Regulation 1984/83. It pointed out that the Fair Trade Commission did not consider that the maximum 10 year period operated against the common good, but that any shorter period would substantially lessen the incentive for wholesalers to invest in dealer outlets to the detriment of dealers and consumers.

28. Esso stated that the solus agreement provided financial assistance to independent operators for the provision of modern, safe and efficient facilities for the retail sale of motor fuels and in return an assured outlet for the wholesaler. The investment included the provision of adequate storage capacity to take deliveries in economic load sizes. This resulted in savings in the substantial delivery costs. The commercial and financial advantages conferred by the supplier made it significantly easier to establish, modernise, maintain and operate a service station. The ban on dealing in competing products incited the reseller to devote all his resources to the sale of the contract goods, which allowed the parties to improve or maintain the quality of the contract goods and of the services to the customer. The agreements allowed long term planning of sales and consequently a cost-effective organisation of distribution.

29. Esso claimed that consumers benefited from these improvements as they were assured supplies of goods of satisfactory quality at fair prices and conditions while being able to choose between the products of different suppliers. Consumers had available a choice of modern, safe and efficient outlets for the purchase of motor fuels at a price which reflected the reduced cost of distribution. The only obligation imposed upon the retailer was to purchase motor fuels exclusively from the wholesaler for a ten-year period. This was required in order to justify the considerable investment involved. The obligation related to a particular outlet only. Motor fuels supplied by other wholesalers were available to the motoring public at other outlets in close proximity to the assured outlet.

30. Esso stated that the exact location of a service station was not easy to define and the intention of including any other outlet within a one-mile radius was to include all such facilities owned or used by the retailer in connection or association with the main outlet. They considered a radius of one mile to be a reasonable distance which did not impose an undue restraint on the retailer. It was intended only as a safeguard against the catastrophic effect of a retailer developing a competing virgin site in the very proximity of the subject site. The minimum delivery quantity was incorporated into the agreement to guarantee the efficiency of the delivery operation. The Cooperation Plan was merely a guide to the proper and efficient operation of a service station, and the obligation was not absolute and was not enforced. The obligation in respect of opening was at all reasonable hours and no specific hours were or had been specified. In locations where there was an opportunity, Esso might recommend a retailer to extend his usual hours on a trial basis. For some time, there had not been any joint advertising or sales promotions and, in the past, any such promotions had been with the full agreement of the retailer.

31. Esso stated that they considered it normal business practice that, where equipment was provided by a supplier, it could only be used for that supplier's goods. The usual period of the Dealer Equipment Loan agreement was ten years. The few dealers without such an agreement had such an agreement in the past which had expired. While the equipment was written off over the ten year period of the agreement, in reality it had a longer useful life. In addition to the basic solus agreement which provided for the payment of rebate in advance by way of interest free loan, further financial assistance could be requested by the retailer in the form of an interest bearing loan. The usual period for such a loan was 15 years, but it could be repaid at any time at the discretion of the dealer. The clause in the Deed of Charge/Mortgage restricting letting by the retailer without consent was stated by Esso to be a normal requirement of a lender whose security could be depreciated by a letting at a rent less than the market rent.

32. Esso stated that solus dealers were free to set their own retail prices, and Esso did not influence or enforce a retail price. In their communication advising wholesale price changes,they informed dealers of the revised retail prices which would apply at their company-operated sites. In fact, in the retailer newsletter which advises of any change in wholesale prices, Esso include, for information, the maximum recommended retail price for each grade of motor fuel, effective some days ahead. Esso explained that this had been done in the past in order to advise dealers of the maximum prices which could be charged under the Maximum Prices Order. The practice was continued after the MPO had been repealed for information purposes, and not to influence prices charged by dealers, since, in its absence, all their dealers would telephone to enquire about the prices which Esso would charge in their company stations. At the request of the Authority, Esso agreed, by letter dated 13 May 1992, not in future to inform solus retailers in advance of pump price changes at company stations operated by Artane Service Station Limited.

33. The Society of the Irish Motor Industry (SIMI), which has a number of Esso solus dealers among its members, stated that there appeared to be a significant amount of price competition, as was evidenced by the wide variation in prices displayed at filling stations. With regard to autodiesel, SIMI understood that from time to time dealers could avail themselves of very competitive prices from wholesale suppliers other than their usual petrol company supplier, and this arrangement was helpful from the point of view of enhancing competition. SIMI understood that Esso suggested pump prices to their solus dealers, but they were not aware of any insistence that solus dealers had to comply with these suggested prices. SIMI considered that, depending on the proximity of a company owned station to a dealer, the dealer might wish to protect his sales volume by pricing competitively with the company owned station.

34. SIMI stated that any agreement whereby retailers were required to source their supplies from one supplier was, by definition, restrictive of competition. However, apart from other considerations, solus agreements did provide the stability to enable petrol retailers to develop and retain a reasonable sales volume. Of itself, the solus agreement need not necessarily inhibit price competition, as was clear from the present market place. SIMI supported, as a matter of general principle, and without reference to any individual solus agreement, the granting of a licence in respect of solus agreements.

35. While the provision of loans for improvements or equipment might tend to prolong the exclusive purchase requirement beyond ten years, SIMI considered that the retailer was normally a free agent in this regard and had the option of exploring more favourable arrangements for raising any additional capital required. Without the availability of loans from petroleum companies, SIMI considered that it was very unlikely that many petrol retailers would be successful in raising the necessary capital for improvements and additional equipment, having regard to the very low profit margins as traditionally associated with the sale of petrol by retail. Since the repeal of the Restrictive Practices Order, SIMI had not received any complaints about unreasonable pressure on petrol retailers in relation to advertising and promotion. SIMI were not in favour of advertising or promotional schemes which involved the petrol retailer in additional costs which, inevitably, had to be passed on to purchasers.

36. Section 4(1) of the Competition Act, 1991, prohibits and renders void all agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State.

37. Esso Ireland Limited and the independent Esso solus dealers are engaged in the sale of motor fuels for gain, and they are therefore 'undertakings' within the meaning of Section 3(1) of the Competition Act. The solus and related agreements are agreements between undertakings. The relevant product market is that of motor fuels for resale to the public. Since there are Esso solus dealers in all but one county, the relevant geographical market is the State.

38. The primary feature of the basic solus agreement is that the solus dealer is obliged to purchase his requirements of motor fuels exclusively from Esso for a period not exceeding ten years (clause 3(a)). The solus dealer, therefore, is not permitted to purchase any motor fuels from a supplier other than Esso during the period of the agreement, and no supplier other than Esso may supply the dealer during that period. This limits the commercial freedom of the dealer to obtain supplies, and the freedom of others to supply him, and is a restriction upon competition within the terms of Section 4(1) of the Competition Act.

39. While the effect of a single agreement between Esso and an independent dealer might be insignificant, each agreement must be considered in the economic context of the retail market for motor fuels. [2] Esso alone has solus agreements with several hundred dealers, and it operates through its own outlets, all of which can only purchase Esso motor fuels for a lengthy period at least. Together, the network of Esso dealer and company stations accounts for a not insignificant proportion of total retail sales of motor fuels, and it comprises Esso stations with the largest throughputs. In addition, all the other major suppliers operate a similar system of dealer stations with ten-year solus agreements and large numbers of company stations. The smaller suppliers also have solus dealers, with a few company outlets. The net result is that a high proportion of all retail outlets, and almost all of the largest ones, are either owned by a supplier or are operated on a ten-year solus agreement. None of these can purchase motor fuels for a long period from any other supplier.

40. This tends to introduce a considerable degree of rigidity into the market, and makes it difficult for a new entrant to enter the market on any significant scale, since the most important potential customers are not available, at least in some cases until their solus agreements have expired.

41. The Authority considers, therefore, that the standard Esso solus agreement has the object and the effect of preventing, restricting or distorting competition in goods in the State, and therefore offends against Section 4(1) of the Competition Act, 1991. Since the three related agreements - concerning equipment loan, loan and deed of charge/mortgage - also involve an exclusive purchasing commitment for ten years, or are dependent on an agreement containing such an obligation, they also come within the prohibition of Section 4(1) of the Act.

42. The obligation in the solus agreement upon Esso to supply the dealer with his total requirements (clause 2(a)), is a corollary of the exclusive purchase obligation on the dealer, and it comes within the prohibition of Section 4(1). It is qualified to the extent that the dealer is permitted to purchase supplies in certain circumstances if Esso withholds, reduces or suspends deliveries (clause 4(b)(ii)). The extension of the exclusive purchasing requirement to include the sale of motor fuels by the dealer at any premises within a one mile radius of the designated service station (clause 1(d)), prevents the dealer from selling competing motor fuels at any premises within that area. At the public enquiry held by the Fair Trade Commission in 1989, it was widely held in evidence that the location of a service station was very important in attracting motorists, and that, because of the high price of petrol, it would not be economic for a motorist to drive very far in order to buy petrol cheaper in another service station, because any consequent saving would be offset by the cost of fuel consumed. Competition would therefore appear to be a very localised phenomenon. The obligation not to deal in competing motor fuels within a one mile radius of the designated station is a restriction on competition which is prohibited by Section 4(1).

43. The agreement to provide a loan (clause 2(b)), which is not applicable in all agreements, is a reward to the dealer for accepting the exclusive agreement, and is not caught by Section 4(1). It is important that the existence of a loan cannot be used to extend the life of the exclusive purchase agreement beyond ten years (clause 7(e)). The payment of a rebate to the dealer (clause 2(c)), which is a small amount per litre and is not payable to non-solus dealers or to company owned operators, is a further recompense for exclusivity, and is not within the terms of Section 4(1). The rebate is usually paid as a lump sum in advance by way of a loan under clause 2(b), and amounts to the estimated rebate over the ten years of the solus agreement. The minimum delivery requirement (clause 3(e)), provided that it is not unreasonable, does not itself restrict the dealer from obtaining supplies from another supplier, since he is prevented from doing so by the exclusive purchasing requirement in clause 3(a). It is not restrictive of competition and does not offend against Section 4(1). The requirements in the Dealer Cooperation Plan to open at reasonable hours (clause 5) and to participate in advertising and sales promotion (clause 6), provided that the requirements in a particular case are not unreasonable, do not restrict the dealer in deciding upon his own opening hours nor do they restrict the dealer in engaging or not in his own forms of advertising and promotion. They are not restrictive of competition and are not prohibited by Section 4(1). The obligation to give preference to Esso lubricating oils and other products (clause 7), does not prevent the dealer from selling competing products, and is not restrictive of competition and is not caught by Section 4(1). The requirements to give Esso the chance of introducing a purchaser to the dealer and for the dealer to try to ensure that any purchaser will continue to deal with Esso (clause 3(j)), do not restrict the dealer's freedom to sell the station, and are not prohibited by Section 4(1). [3]

44. The dealer equipment loan agreement comes within the scope of Section 4(1) since it is subsidiary to and dependent upon the solus agreement which is itself prohibited by Section 4(1). The equipment loan agreement does not have a period of effectiveness beyond that of the solus agreement (clause 1(i)), and cannot be used to extend the ten-year period of exclusivity by artificial means, and the length of the loan is not a restriction on competition within the meaning of Section 4(1). The ability of Esso to determine the agreement in the event of the dealer ceasing to operate the station or failing to carry out his obligations (clause 3), is a normal consequence of the supply agreement and of the fact that the equipment is the property of Esso, and does not restrict competition in the sense of Section 4(1). The requirements to allow Esso to inspect the equipment, for the dealer to use the equipment exclusively for Esso products, and for Esso to take samples and lock and seal the tanks (clause 4(1)), reflect the solus agreement and the ownership of the equipment by Esso, and do not restrict competition and are not caught by Section 4(1).

45. The loan agreement, being virtually identical to the solus agreement, is prohibited by Section 4(1) for the same reasons as set out above, while many clauses are not caught by Section 4(1) as before. The obligation on the dealer to grant a mortgage in return for the loan (clause 3(f)), which cannot be used to extend the period of exclusivity, is a normal requirement for the granting of a loan, and is not a restriction on competition within the meaning of Section 4(1).

46. The deed of charge/mortgage is related to the loan agreement, and it also contains an exclusive purchase requirement (Second Schedule, clause 3), which brings it within the scope of the prohibition in Section 4(1). The requirements to repay the loan (clause 1(i)), to become a tenant at will (clause 6), to keep the premises open for the sale of petrol (Second Schedule, clause 2), and not, without the consent of Esso, to grant any lease or tenancy (Third Schedule, clause 4), are normal requirements of loan and mortgage agreements, and they do not restrict competition and so they do not offend against Section 4(1).

47. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which, 'having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.'

48. In the opinion of the Authority, the solus and related agreements notified by Esso fulfil the conditions provided for in Section 4(2).

49. Solus agreements in the motor fuels sector differ from other exclusive purchase agreements in that the supplier confers on the reseller special commercial or financial advantages by contributing to his financing, granting him a loan on favourable terms, and providing him with equipment, while the reseller enters into a long-term exclusive purchasing obligation which is accompanied by a ban on dealing in competing products and the supplier agrees to supply the reseller's total requirements of motor fuels.

50. The solus agreements produce an appreciable improvement in distribution in which consumers are allowed a fair share of the resulting benefit. The commercial and financial advantages conferred by the supplier on the retailer make it significantly easier to establish, modernise, maintain and operate service stations. A high level of investment is needed to provide adequate facilities and to meet safety standards, and Esso has invested heavily in its company owned stations. Independent dealers would have insufficient resources for the necessary investment without substantial support from the supplier, otherwise company stations would become dominant. They are able to provide a range of services which they would otherwise be unable to offer. The exclusive purchasing obligation and the ban on dealing in competing products imposed on the reseller encourage the reseller to devote all the resources at his disposal to the sale of motor fuels, while retaining his independence and freedom to run the business as he sees fit. Solus agreements lead to durable cooperation between the parties, allowing them to improve or maintain the quality of the motor fuels and of the services to the customer and the sales efforts of the reseller. The investment by the supplier ensures security of supply by providing assured outlets for its product, and retailers are guaranteed regular supplies. This allows long-term planning of sales and consequently a cost-effective organisation of production and distribution. The costs of distributing motor fuels to a limited number of exclusive outlets which purchase in large quantities are lower than delivering smaller volumes to a large number of outlets selling two or more brands at the one service station. The pressure of competition between different brands of motor fuel obliges the undertakings involved to determine the number and characteristics of service stations in accordance with the wishes of consumers.

51. The solus agreement includes a clause extending the exclusive purchasing requirement to include the sale of motor fuels by the dealer at any premises within a one-mile radius of the designated service station. The Authority accepts that competition in the sale of motor fuels is a fairly localised phenomenon. Motorists do not tend to travel any great distance to buy at a cheaper price, since the cost of so doing would soon eliminate any savings made. The dedication of the dealer to maximising sales of Esso motor fuels at the designated outlet would be likely to be adversely affected if he were permitted to sell another brand at a station owned or operated by himself within one mile of the designated station. Without such a requirement, the improvement in distribution would not be secured. The dealer is free, however, to sell competing motor fuels outside the one mile radius.

52. Consumers benefit from these improvements especially because they are ensured supplies of motor fuel of satisfactory quality while being able to choose between different brands of motor fuel. The solus system leads to more efficient distribution and to better facilities and services at dealer stations, to the benefit of consumers. They have a choice between stations offering differing degrees and types of service. The system should ensure both intra-brand and inter-brand competition, including price competition.

53. The advantages produced by solus agreements cannot be achieved to the same extent and with the same degree of certainty in any other way. The exclusive purchasing obligation on the reseller and the non-competition clause imposed on him are essential components of such agreements and are indispensable for the attainment of these advantages. These obligations are confined to the purchase of motor fuels for resale, and do not extend to other products. The limitation of the period of the exclusive agreement to ten years is sufficient to produce the advantages, while maintaining the reseller's commercial freedom to change supplier and to ensure access to the retail level of distribution on the part of other suppliers. Any shorter period would substantially lessen the incentive for suppliers to invest in dealer outlets, to the detriment of dealers and consumers. This is especially so in the State, where the average throughput in petrol stations is only about one quarter of the EC average.

54. There are large numbers of Esso solus, company and non-solus outlets, and there are many other outlets of these types which sell motor fuels under other brand names. There is a high degree of competition between outlets, both intra-brand and inter-brand, and, with the removal of price control, there is scope for price competition, in particular, since solus and non-solus dealers are free to determine their own selling prices. While the long-term nature of the exclusive supply contracts limits the possibilities for a new entrant to secure outlets, all dealers are free to change their supplier at the expiry of the contract, and this does occur, and agreements are expiring on a continuous basis. In addition, a new supplier entrant would be likely to want the security offered by long-term solus agreements before making the sizeable investment necessary to enter the market in the first place. There is thus no possibility of the undertakings being afforded the possibility of eliminating competition for a substantial part of the products in question.

55. It will be apparent that, in its assessment, the Authority has had regard to EC Regulation No. 1984/83, which exempts certain exclusive purchasing agreements, including service station agreements, from the prohibition of Article 85(1) of the Treaty of Rome (see paras. 20 to 22).

56. During the course of its investigation of the notified agreements, the Authority became aware that, shortly before any change in the wholesale price of its products, Esso circulated a newsletter to its solus retailers advising them of the change in wholesale prices and of the maximum recommended retail price for each grade of motor fuel. It was explained by Esso, and was accepted by the Authority, that this had been done in the past in order to try to ensure that its retailers did not exceed the maximum prices which could be charged under the Maximum Prices Order, price control only being abolished on 30 September 1991. The subsequent continuance of this practice, according to Esso, was not designed to influence prices charged by independent solus dealers nor was it aimed at ensuring resale price maintenance.

57. This practice was not part of the written terms of the agreements notified. Nevertheless, the Authority considered that it formed part of the total relationship between the supplier and its solus dealers, and that it should be considered in this context. In most circumstances, provided that independent resellers are free to set their own resale prices, and that they are aware of this, the informing of resellers by suppliers of recommended, or recommended maximum, resale prices does not, in the opinion of the Authority, amount to resale price maintenance, and is not therefore caught by the prohibition in Section 4(1). (This might not be the case, however, if a considerable degree of price similarity were observed in the market).

58. Esso tends to differ from other oil wholesalers in that its company-owned stations are operated by the company itself, through Artane Service Station Limited, and Esso sets the resale prices at these company stations. Such stations are in competition with Esso solus stations in the vicinity. Esso is an operator on the market like its solus dealer outlets. In BP Kemi/DDSF, the EC Commission condemned an information exchange agreement between a supplier and his distributor where the supplier himself competed in the distributor's territory. [4] In effect, Esso, by informing its solus dealers of a maximum recommended price, was informing them of the price which would be charged in Esso company operated stations. Its action amounted to informing solus dealers in advance about the prices which would be charged by their competitors, competitors who accounted for a large proportion of total retail sales of Esso products. The Authority was concerned that this could have the effect of eliminating uncertainty and of distorting intra-brand competition between Esso outlets. In response to this concern, Esso, as pointed out in para 32, readily agreed not in future to inform solus retailers in advance of pump price changes at company stations operated by Artane Service Station Limited, that is at Esso company-operated stations. The Authority believes that, in general, the exchange of information by competitors would offend against Section 4 (1) and it does not believe that a licence under Section 4 (2) could be justified for such a practice.

59. Accordingly, the Authority is of the opinion that all the conditions set out in Section 4(2) of the Competition Act are fulfilled.

60. The Authority therefore grants a licence under Section 4(2) in respect of each of the notified Esso agreements. Since each notification relates to a category of standard agreements, each licence is granted in respect of that category of notified Esso agreements.

61. The licences shall apply from the date of this decision, that is 25 June 1992. Given the ten-year duration of the notified agreements, it seems appropriate that the period specified for the licences should be ten years also, that is until 24 June 2002. It is not considered necessary to attach any conditions to the licences.

62. A copy of the licences is annexed to this decision.

For the Competition Authority:

Patrick M. Lyons

Chairman

25/06/1992.

The provisions of Section 4(1) of the Competition Act, 1991 are declared inapplicable to the category of standard Esso solus agreements notified to the Competition Authority on 19 December 1991 (CA/14/91E), on the grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the Competition Act, 1991 have been fulfilled. This licence shall apply from 25 June 1992 to 24 June 2002.

This licence is addressed to:

Esso Ireland Limited,

Stillorgan,

Co. Dublin.

For the Competition Authority:

Patrick M. Lyons

Chairman

25/06/1992.

The provisions of Section 4(1) of the Competition Act, 1991 are declared inapplicable to the category of Esso dealer equipment loan agreements notified to the Competition Authority on 19 December 1991 (CA/13/91E), on the grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the Competition Act, 1991 have been fulfilled. This licence shall apply from 25 June 1992 to 24 June 2002.

This licence is addressed to:

Esso Ireland Limited,

Stillorgan,

Co. Dublin.

For the Competition Authority:

Patrick M. Lyons

Chairman, 25/06/1992.

The provisions of Section 4(1) of the Competition Act, 1991 are declared inapplicable to the category of Esso dealer loan agreements notified to the Competition Authority on 19 December 1991 (CA/12/91E), on the grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the Competition Act, 1991 have been fulfilled. This licence shall apply from 25 June 1992 to 24 June 2002.

This licence is addressed to:

Esso Ireland Limited,

Stillorgan,

Co. Dublin.

For the Competition Authority:

Patrick M. Lyons

Chairman

25/06/1992.

The provisions of Section 4(1) of the Competition Act, 1991 are declared inapplicable to the category of Esso deed of charge/mortgage agreements notified to the Competition Authority on 19 December 1991 (CA/11/91E), on the grounds that, in the opinion of the Authority, all the conditions of Section 4(2) of the Competition Act, 1991 have been fulfilled. This licence shall apply from 25 June 1992 to 24 June 2002.

This licence is addressed to:

Esso Ireland Limited,

Stillorgan, Co. Dublin.

For the Competition Authority:

Patrick M. Lyons

Chairman

25/06/1992.