Irish Competition Authority Decisions

1. The notification relates to existing agreements concerning the lending of money to finance the purchase of lubricating oil facilities and/or equipment by Burmah Castrol (Ireland) Ltd to certain resellers of lubricating oils notified under Section 7 of the Competition Act, 1991 on 8 June 1992.

2. Burmah Castrol (Ireland) Ltd., is an Irish registered company engaged in the manufacture, importation, marketing and distribution in the State of various petroleum products. The company is a subsidiary of Castrol Limited, registered in the UK, and its ultimate holding company is Burmah Castrol plc. The parent company is engaged worldwide in all stages of the production and supply of petroleum products. The Burmah retail motor fuel network consists of a number of company-owned outlets and a number of dealer-owned outlets operating under the Burmah brand. In addition, lubricating products are supplied to a large number of other outlets, including petrol stations supplied by other wholesalers and other outlets, and other customers.

3. The other parties to the notified agreements are car franchise main dealers, who undertake guarantee and servicing work, including servicing and oil changes, and other non-franchise vehicle workshops which undertake car servicing. These dealers generally do not sell petrol. At the end of September 1992, 28 customers had cash loans under the existing agreement. In addition, over 200 other customers had agreements providing for the supply of lubricating oil equipment on loan or hire purchase, which are not dealt with in this decision. Approximately six hundred similar customers were supplied without such agreements, but on Burmah's standard terms and conditions.

4. The product with which the notified agreements are concerned consists of lubricants, that is any oil-based product which is used for the lubricating of a motor vehicle. Almost all Burmah lubricating products are sold under the trade name ´Castrol'. While lubricating oils are to some extent interchangeable, the product is usually differentiated as follows:

(a) top engine oils;

(b) other multigrades;

(c) monogrades; and

(d) two-stroke oils.

Top engine oils appears to be the largest category of sales.

5. Besides Burmah Castrol, all the other main wholesalers of petroleum products in the State also market lubricating products. In addition to supplying lubricants to their company-owned and dealer-owned petrol stations, the wholesalers also supply motor franchise dealers and other motor workshops, motor accessory shops, other retail outlets, and direct to industrial and agricultural users.

6. Overall, according to its own confidential estimates, Burmah Castrol has a significant presence on the lubricating oils market as a whole and in important sectors of it. This is despite the fact that Burmah Castrol has only a small share of the petrol market and relatively few company and tied dealer outlets, where it could expect to sell mainly Castrol oils. It has over 20% of the total market for all engine oils supplied by the main firms. Its market share in the total and top engine oils markets is about twice that of the next largest supplier. Most of its sales consist of multigrades, by far the largest selling products in the sector. In respect of franchised vehicle workshops, it is sold at a high proportion of all outlets. It supplies a large number of these outlets under the different types of notified agreements. Of the non-franchised workshops, Burmah Castrol supplies a very high proportion under the different agreements. Burmah Castrol is regarded as the market leader and occupies a strong position in the market for lubricating oils generally, and in the top engine oils and franchised and non-franchised vehicle workshops segments of that market.

7. Since outlets retailing lubricants are located throughout the State, the appropriate geographical market in this case is the State.

8. Up to 30 September 1991, part of the motor lubricants sector was subject to the provisions of the Restrictive Practices (Motor Spirit and Motor Vehicle Lubricating Oil) Order, 1981. The Order was repealed on the coming into force of the Competition Act on 1 October, 1991.

9. Burmah Castrol had made cash loans for the purchase of lubricating equipment to 28 customers as at 30 September 1992. The size of loan ranged from £2,500 to £25,000 and attracted a low rate of interest. Eleven loans were to be repaid over a five year period, and 17 over 10 years.

10. The cash loan agreement is used where Burmah Castrol lends money to finance the purchase of motor vehicle lubricating facilities and/or equipment. The agreement provides for the amount of the loan, the interest rate, and payment on a quarterly basis over a specified period. Other clauses are as follows:

(a) The company (the purchaser) agrees not to enter into any agreement or arrangement with any other individual firm or company, the effect of which would place a fetter of any kind upon it from freely displaying, advertising, stocking and selling the products of your company (Burmah Castrol) in our workshops and stores. (Clause 2).

(b) The company also agrees that in the event of disposal, selling or ceasing to carry on our business, or in the event of any breach by us of any term contained in this agreement, the company will forthwith repay Burmah Castrol (Ireland) Limited the whole amount of the loan that may be outstanding at the date of such disposal, sale, ceasing to carry on business or breach of aforesaid. (Clause 3).

(c) This agreement shall remain in force until the entire loan shall have been discharged in the manner aforesaid. If however, immediate cash repayment of the balance outstanding is required at any time, such repayment shall be made at the request of either party giving to the other, one month's clear notice in writing, to this effect and at the expiration of the time specified in the said notice, the full amount shall be payable to Burmah Castrol (Ireland) Limited. (Clause 4).

11. Burmah Castrol made the following observations on the notified agreements:

´It is submitted that the agreements, viewed individually or as a network, are not intended to prevent, restrict or distort competition. The intention of the agreements is to increase the sales of the Company's products, improve distribution and reduce costs and to maintain quality control and protect against environmental risks'.

12. In a further submission, following a meeting with the Authority, Burmah Castrol stated that:

´It is again submitted that none of the markets into which the company sells are foreclosed to any significant degree. Of the market segments listed in the first page of the market plan extract, it is considered that, apart from petrol service stations, which are to be subject to a different regime, only the franchised car and commercial vehicle work shops market (if it constitutes a separate market) is to any extent tied up. Burmah Castrol have agreements with 100 franchise dealers. The company estimates that about 50% of the dealers in this segment are not subject to any tie whatsoever and that of the remainder, the operation of the five year rule means that an average of 20% of those become free every year. The company estimate, therefore, would be that at any time only 40% of the segment is subject to a tie at any one time...... In any event, the company does not accept that the franchise dealer network can be regarded as a separate market and believes that the market as a whole is not foreclosed to access by acquisition or otherwise and that, as a result, the Authority should certify its opinion that the arrangements do not offend against Section 4(1)'.

13. 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.

14. Burmah Castrol and the resellers who are party to the notified agreements are all engaged in the supply and distribution of lubricating oils for gain, among other activities, and they are therefore ´undertakings' within the meaning of Section 3(1) of the Act. The notified agreements are all agreements between undertakings. The relevant product market is that of lubricating oils for resale, and particularly that part which is supplied to franchised and non-franchised motor vehicle workshops. The relevant geographical market is the State.

15. The existing cash loan agreement provides that the recipient will not enter into any agreement or arrangement with any other individual, firm or company, the effect of which would place a fetter of any kind upon it from freely displaying, advertising, stocking and selling Castrol in the recipient's workshops and stores. The object of this requirement is to ensure that no other agreement will be entered into which would restrict the sale of Castrol on the premises. Its effect is to permit the sale of Castrol, and not to prevent or hinder the sale of any competing lubricating oils. The Authority considers therefore that this requirement has neither the object nor the effect of preventing, restricting or distorting competition. This agreement, therefore, does not offend against Section 4(1).

16. Burmah Castrol and their customers who are party to the existing cash loan agreements are undertakings within the meaning of the Competition Act. The notified agreements are agreements between undertakings, and they operate within the State. The Authority considers that, on the basis of the facts in its possession, the existing cash loan agreement, which merely requires that there be no fetter on dealing in Burmah Castrol products arising from any other agreement, does not offend against Section 4(1) of the Competition Act. A certificate may therefore be issued in respect of this agreement.

The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the existing cash loan agreement between Burmah Castrol (Ireland) Ltd., and certain of its customers of lubricating oils, notified under Section 7 on 8 June 1992 (notification no. CA/36/92E), does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority

Patrick M. Lyons

Chairman

5 May 1994