Irish Competition Authority Decisions

1. Notification was made to the Competition Authority on 8 June 1992 of two standard form agreements, one regarding the loan of equipment the other regarding a hire purchase loan by Burmah Castrol (Ireland) Ltd to purchasers of its lubricating oils. The notifications requested certificates under Section 4(4) of the Competition Act, 1991, or, in the event of a refusal by the Competition Authority to issue certificates, licences under Section 4(2). The Authority issued a Statement of Objections to Burmah Castrol on 27 June 1994. In response, Burmah Castrol proposed certain amendments to the agreements which were not acceptable to the Authority.

2. These notifications relate to existing standard form agreements concerning the supplying of lubricating equipment on hire purchase terms and the loan of lubricating equipment by Burmah Castrol (Ireland) Ltd to certain resellers of lubricating oils. An existing cash loan agreement was also notified to the Authority (notification no. CA/36/92E). Since it did not offend against Section 4(1) of the Competition Act, the Authority issued a certificate in respect of the agreement [1]. A new cash loan agreement was also notified to the Authority, and this is the subject of a separate decision.

3. 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.

4. 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, over 100 customers had equipment loans and less than 100 had hire purchase loans. Each customer was a party to one of the existing agreements. About 30 other customers had cash loans from Burmah. Approximately six hundred similar customers were supplied without such agreements, but on Burmah's standard terms and conditions.

5. 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.

6. Besides Burmah Castrol, all the 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.

7. 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 lubricating oil through retailers in 1988 were 14.8m. litres, while commercial sales amounted to 24.4m. litres. Major end-users in the commercial sector purchase lubricants direct from the wholesalers, and the retail and commercial sales of lubricants constitute distinct sections of the total lubricants market.

8. The main wholesalers supply figures of sales to Stokes Kennedy Crowley, which produces estimates of total sales of the different petroleum and oil products. The estimate of total sales of engine oils in the consumer market, that is through resellers, in 1991 amounted to over 11m. litres. Burmah Castrol, however, considers that this represented only about 85% of the full consumer lubricant market, due to the omission of suppliers who do not contribute data to Stokes Kennedy Crowley. Burmah Castrol estimates that total multigrades account for almost 90% of the sales of 11m. litres, and monogrades for 9% of the total. According to Burmah Castrol, the number of outlets of different kinds is as follows:

Type of Outlet No. of Outlets

Franchise vehicle workshops 729

Other vehicle workshops 561

Petrol service stations 1,740

Oil and lube shops, etc. 8

Supermarkets, etc. 850

Accessory shops 53

Motorcycle shops 221

Agricultural dealers, etc. 507

Wholesale distributors 291

Fuel distributors 160

Total 5,120

Note: The number of petrol stations is much less than the total number of outlets in the State selling petrol. Many of the latter do not sell lubricating oil, and these are excluded from the figures in the Table.

Burmah Castrol estimates that each of the first three types of outlet accounts for between 15 and 20% of total sales of engine oils.

9. Consumers who purchase lubricating oil do so either:

(a) for topping up the oil sump on the forecourt of a petrol station or as a do-it-yourself operation; or

(b) for a complete oil change, usually at a motor workshop or in a lubrication bay attached to a petrol station; or

(c) for a complete oil change as part of an overall engine service, usually at a motor workshop.

In the latter case, consumers will go to the place where they purchased a new vehicle for any service under guarantee, and will often go to the same place or to another outlet franchised for their make of vehicle for subsequent maintenance and service, including oil changes. Where there is an oil change involved, consumers have little or no choice of brand, and the three activities above are so separate as to constitute quite distinct market segments.

10. Oil may be sold in cans or plastic packages marked with the brand name of the supplier. It may also be sold by way of a bulk oil container, in which case the consumer has no way of knowing for certain which brand of oil has been supplied. Oil from bulk containers is often used for oil changes, whether or not as part of a complete service operation, and the customer is not usually present when the oil is supplied. Again, the consumer appears to have little choice of the brand of oil and cannot know which brand, or even grade, has actually been supplied. In addition, the cost of oil is usually only a small part of the cost of a complete service, and the customer is unlikely to choose an outlet for a service on the basis of the brand of oil supplied, or its price. Topping up, a single oil change, and a full service with oil change cannot be regarded as close substitutes for each other.

11. Franchised vehicle workshops are shown separately in the market estimates compiled by Burmah Castrol, and it appears that, since customers tend to go regularly to the same outlet for servicing, they can be regarded to some extent as a separate market category. The same is true to a lesser extent of other vehicle workshops. To the extent that a customer patronises the same outlet, any restraint upon the oil which may be sold there reduces the customer's freedom of choice of oil products.

12. 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 well 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 almost 14% of these outlets under the notified agreements. Of the non-franchised workshops, Burmah Castrol supplies a very high proportion, nearly 25% of these being supplied under the agreements. Burmah Castrol is certainly 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.

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

14. 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.

15. Burmah Castrol had made loans of lubricating equipment to 146 customers at 30 September 1992. The value of the equipment loaned ranged from £410 to £40,000. The equipment consisted of one or more of garage lifts, compressors, oil reels, grease reels, air reels, water reels, oil pumps, grease pumps, waste oil pumps, bulk lube oil tanks, waste oil tanks, oil flow meters, and oil monitoring units. The equipment is capable of being loaned for an indefinite period, though Burmah Castrol claimed that the borrower would presumably be entitled to terminate the loan on giving reasonable notice.

16. Burmah Castrol had hire purchase agreements for the purchase of lubricating equipment with 72 customers, covering 86 agreements at 30/9/92. The size of loan ranged from £600 to £40,000. The rate of interest varied from 0 to 5%. The loans had varying repayment periods, from one to ten years. The equipment concerned was of the same type as that listed in respect of the equipment loan agreements. At a certain stage of the repayment process, in accordance with the law on hire purchase, ownership of the equipment passes from the company which provides the loan to the hirer.

17. The arrangements provide for Burmah Castrol to lend lubricating oil equipment to the reseller, the hirer. In return, the hirer agrees that the equipment shall be used exclusively for the dispensing of Burmah Castrol products, and that the hirer will return the equipment if he ceases to purchase his total requirements of lubricating oils and greases from Burmah Castrol. It contains the following main provisions:

(a) The owner will lend to the hirer from the date hereof the equipment specified in the Schedule to this agreement. (Clause 1)

(b) The hirer agrees that during the continuance of this agreement, the equipment shall be used exclusively for the dispensing of "Castrol" products, and any other types of lubricating oils and greases distributed by the owners, or any associated company of the owners from time to time. Should the hirer, for any reason, cease to purchase his total requirements of lubricating oils and greases from the owners, the hirer shall return the equipment at the hirers risk and expense as specified in Clause 2 hereof. (Clause 4)

The agreement also provides that the hirer keep the equipment in good order and repair, and that he will keep the equipment insured for a specific replacement value. It permits the company to have access to the equipment at all reasonable times in order to inspect its state of repair and maintenance. Provision is made for the owner to terminate the agreement, on seven days' notice, and to take possession of the equipment, and for the hirer to be responsible for all costs and expenses of repair and reinstatement to his property. The Schedule lists the equipment and its value.

18. This agreement is used where Burmah Castrol supplies equipment on hire purchase terms. It provides for the initial payment and monthly rentals. It provides that the equipment shall remain the property of the owner until a certain sum has been paid, when it becomes the property of the hirer. It also requires the hirer to keep the equipment at a specified address and not to dispose of it, and to keep it insured for the full hire purchase price, and for inspection by Burmah Castrol. It contains standard terms in hire purchase agreements concerning the right of the hirer to terminate the agreement and a restriction on the owner's right to recover the goods. The Schedule lists the equipment and details of the financial arrangements. If the equipment is for use with lubricants, its use is restricted as follows:

Where the garage equipment or any part thereof is for use with lubricants the hirer shall during the currency of this agreement use and stock therein and supply therefrom to customers only the lubricants manufactured by the owner which shall be purchased direct from the owner and do his utmost to dispose of such lubricants in the ordinary course of business and shall not keep or allow to be kept in the garage equipment or any part thereof or use or allow to be used therewith anything whatever except such lubricants as aforesaid. (Clause 7)

19. 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. [2] The regulation entered into force on 1 July 1983 and it expires on 31 December 1997.

20. 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. The supplier may be obliged not to distribute the goods or competing goods in the reseller's principal sales area and at the reseller's level of distribution. For goods generally, the exclusive distribution agreement may be for no longer than five years. Besides the exclusive purchasing requirement, the only other restriction of competition that may be imposed on the reseller is the obligation not to manufacture or distribute goods which compete with the contract goods. The reseller may also undertake to purchase complete ranges or minimum quantities of the goods, to sell the goods under trademarks or packed and presented as specified by the supplier, and to engage in sales promotion, involving advertising, maintaining a sales network or stock of goods, providing customer and guarantee services, and employing staff with specialised or technical training. The benefit of the exemption may be withdrawn from a specific agreement in certain circumstances where, for example, effective competition is lacking, or market access is made difficult, or where less favourable prices are made available to exclusive purchasers than to other purchasers for resale.

21. Lubricating oil is mentioned in Title III of the Regulation, which applies solely to agreements for the supply of petroleum-based motor vehicle fuels for resale in a specified service station. Where special commercial or financial advantages have been accorded by the supplier to the reseller, the exclusive purchasing obligation for motor fuels may be imposed for a maximum period of ten years. In such service station agreements, but only in such agreements, the reseller may also be obliged not to use lubricating oil supplied by other firms where equipment is financed or made available by the supplier, but he may not be prevented from selling oil supplied by other firms.

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

'Leaving aside ancillary elements, the essential nature of the provisions of these agreements which might be regarded as restrictive is that, in return for the provision by the Company of equipment or cash to purchase equipment, the customer agrees:

1 to use the equipment exclusively for the Company's products; and either

2 to purchase the customer's entire requirements of lubricant products from the Company; or

3 to stock for use and use on the customer's business premises only the Company's lubricant products.

It is submitted that these restrictions do not have the object or effect of preventing, restricting or distorting competition in trade in any goods or services in the State or any part of the State.

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.

The Authority is referred in general to the decision of the High Court in Masterfoods Ireland Limited -v- HB Ice Cream Limited (unreported, Keane J., 28 May 1992). As regards improving distribution, the provision of storage and dispensing equipment enables larger volumes of the Company's lubricants to be stored, thus decreasing the frequency of drops required. This could not be achieved if the customer was allowed to use the storage for products of competitors. As regards increase in quality control and the management of environmental risks, the provision by the Company of specific types of equipment enables the Company to ensure that only top quality equipment is used, thus significantly reducing chances of contamination. The exclusivity is required in order to ensure that the Company can be satisfied that inferior quality products are not mixed with the products of the Company. This reduces the Company's exposure to liability claims. It should be pointed out that, except where the agreement is terminable by reasonable notice, no prohibition is placed on the customer selling competing products; the only restriction is on the use of those products. To the extent that this limits the use of the equipment, it is submitted that this is necessary for quality control and to the extent that the use of other lubricant products on the premises is prohibited, this is necessary to give effect to the prohibition on use of other lubricant products through the equipment. Essentially, there is no other effective way of policing the obligation in regard to the equipment.

The Authority is referred to the decision of the Court of Justice of the European Communities in case 234/89 Delimitis -v- Henninger Brau [1991] 4 CMLR. At paragraph 13, the Court

pointed out that if agreements providing for exclusive purchase obligations do not have the objective of restricting competition, it is nevertheless appropriate to verify whether or not they have the effect of hindering it, restricting it or distorting its interplay. In order to assess this, it is necessary to examine the agreements in their legal and economic context. In paragraph 27, the Court held that an exclusive purchasing obligation would infringe article 85(1) of the EEC Treaty if (to paraphrase) (a) the national product market concerned is difficult to gain access to for competitors which might become established in this market or increase their share of this market and (b) it is necessary that the contract in dispute contributes significantly to the blocking effect produced by the network of contracts in their legal and economic context. It is submitted that the Authority should adopt this as its basis for considering the exclusive and limited purchase obligations contained in the agreements. It is submitted that these agreements do not have any effect on entry to or increasing penetration in this market. The market is not characterised by any significant barriers to entry. The Company is of the opinion that there is a substantial market not currently tied by the provision of equipment to any supplier. The figures [supplied] for new customers during 1992 illustrate this. In addition, the Authorities attention is drawn to the successful entry into the market in the last few years of the Kuwait Petroleum Company which carries on business of selling lubricating oil. This indicates that the market remains penetrable. It is submitted that the length of the tie in this regard is not necessarily relevant and that, in this regard, the provisions of article 3(d) of regulation 1984/83/EEC should not be regarded as conclusive.

In addition, it is submitted that the exclusivity is necessary to protect the Company's property rights in the equipment, in the same way as for instance the insurance obligation, and that the Act should not be interpreted as permitting interference with these rights.

If the Authority does not accept the above submissions it is submitted in the alternative that a licence should be granted for the continuance of these arrangements on the basis that they fulfil the conditions set out in section 4(2) of the Act.

The Authority is referred to the recitals to regulation 1984/83/EEC. It is submitted that the benefits identified by the Commission as generally found in exclusive purchasing arrangements are applicable to the exclusive purchasing obligations contained in the agreements. The Authority is also referred to [the above] which discusses the benefits in terms of distribution costs arising from these agreements. It is accepted that, as regards agreements to which Title I of Regulation 1984/83 applies, the maximum term of such agreements is five years. The Company would intend to inform its customers that the restriction on purchasing other lubricants for resale does not apply beyond 5 years from the commencement of the agreement, where Title I rather than Title III applies.

The proportion of total sales covered by these agreements is approximately 7.5%. The Company does not believe that this in any way implies that the agreements do not bring about the suggested improvements in distribution in respect of that proportion of its sales.

As regards the fact that equipment supplied under hire purchase does not remain the Company's property, this is a necessary consequence of the Hire Purchase Acts'.

Burmah Castrol further explained that, in the existing agreements, the restriction on the use of other lubricant products was interpreted by the company and its legal advisors to refer only to use through the lubricating equipment. The reference to 'exclusive requirements' in the existing equipment loan agreement was not interpreted by the company as giving them exclusivity of supply. It was possible for workshops to have more than one lubricating bay, financed by more than one supplier.

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

'The company confirms that, to the extent that it is obliged under the Competition Act not to apply dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage, it complies fully with this obligation.

As regards the Authority's impression [stated at the meeting] that the investments represent a poor return and could therefore be regarded as having been entered into merely for the purposes of foreclosure, the company, while admitting that the restrictions placed on the dealer in these agreements is valuable, does not regard these investments as bad investments. The figures derived by the Authority do not take account of the fact that a large number of the agreements in any one year are new agreements and therefore the value of those agreements for a full year would be up to 90% greater later. In addition, many of the businesses in which investments are made will be new businesses which will take time to mature and provide the appropriate return.

It was suggested at our meeting that the cash loan and hire purchase methods may not involve financing the purchase of equipment. While we accept that provision of low cost loans or goods on hire purchase is not the same as providing the equipment, the two methods of assisting dealers are it is submitted permitted by the block exemption regulation. In our view, there is nothing on the face of the block exemption or the explanatory notice to suggest that financing must be on such terms as to be equivalent to providing the equipment. In our view, they can be clearly interpreted as alternatives to each other. We are instructed that this method of financing represents normal practice in the industry throughout Europe. Therefore, it is submitted that both forms of investment involve financing the purchase of lubricating bay or other lubricating equipment.

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. The company believes that the criterion to be used in determining whether or not an agreement or bundle of agreements restrict competition within the meaning of section 4(1) of the Competition Act should be the same as those identified by the European Court of Justice in the Delimitis decision at paragraph 23 which reads:

"If an examination of all similar contracts entered into on the relevant market and the other factors relevant to the economic and legal context in which the market must be examined shows that the agreements do not have the cumulative effect of denying access to that market to new national and foreign competitors, the individual agreements comprising the bundle of agreements cannot be held to restrict competition with the meaning of Article 85 (1) EEC. They do not, therefore, fall under the prohibition laid down in that provision".

While it is accepted that Article 85(1) is slightly different from section 4(1), the company does not believe that the difference is material in this context.

The company also point out that, as shown by the Statoil acquisition of BP Ireland, there are real concrete opportunities to acquire market share by acquisition.

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).

The company believes that consumers receive a fair share of the benefits of these agreements. With a few exceptions, the retail customers in all market segments, including motor vehicle franchisees, are single operations although in some cases they are backed by motor importers. It is not the practice of such motor importers to invest in equipment for the retailer. The retailers themselves would evidently not have the resources to make or finance investments of the type provided by the company. Effectively, therefore, it is only through investments of the type made by the company and its competitors that the consumer can obtain the benefit of the equipment which the company supplies. This equipment is, as far as possible, maintained at a state of the art level and includes a wide range of special products to respond to the increasing wave of new technical requirements. The company provides technical services and consultancy services and also laboratory and analytical services, many of which are unique in Ireland. In addition, Burmah Castrol has been awarded the ISO9002 Standard for its services. While the consumer may not appreciate the benefits which are thus supplied, they do in fact enable the retailer to provide a better service to the consumer than would otherwise be the case'.

24. Following further meetings and correspondence with the Authority, Burmah Castrol agreed by letter of 8 April 1994 to amend its agreements in order to address the concerns of the Authority. Since the amendments proposed were not acceptable to the Authority, a Statement of Objections was issued to Burmah Castrol on 27 June 1994. In response, Burmah Castrol proposed further amendments. In respect of the equipment loan agreement, they enclosed two draft letters, one for agreements entered into less than five years ago and another for agreements with a term of greater than five years to run. They stated that there was a distinction between agreements which were more than five years old and those which were less than five years old. In the former case, a proposed option could now be exercised.

25. The draft letter for agreements entered into five years ago or more contained the following:

'Following discussions with the Competition Authority, we have agreed that these Agreements will be modified so that, after 5 years from the start of the Agreement, the customer would have the option of purchasing the equipment at its written down value or returning it to Burmah Castrol ........

If within 6 months from the date of this letter, you either buy the equipment or return it, your obligations under the Agreement will end on purchase or return. Otherwise, the agreement will remain in full force and effect except the obligation to return the equipment if you cease to purchase your entire requirements from us'

26. The draft letter for agreements entered into less than 5 years ago contained the following:

'We have agreed to amend clause 4 of the Agreement by replacing the entire existing clause 4 with the following:-

"The Hirer agrees that for a period of five years from the date of this Agreement, the equipment shall be used exclusively for the dispensing of "Castrol" products and any other type of lubricating oils and greases distributed by the owners or any associated company of the owners from time to time".

Clause 1 will also be altered to read:

"The Owner will lend the Hirer, for a period of 5 years from the date of this Agreement, the equipment specified in the Schedule to this Agreement".

At the end of 5 years from the original date of your agreement, you will be given, on request, the option to return the equipment to us or to purchase it from us at its fully discounted value. The rest of the Agreement as at the date hereof is confirmed and is unaffected by these changes".

27. Burmah Castrol also enclosed a draft letter to be sent to customers with Hire Purchase Agreements which were for a term of longer than 5 years. They stated that the Hire Purchase Agreement contained options to purchase equipment and options to return the equipment to the Company, which were regulated by the Hire Purchase Acts. The only change was that the "exclusive use" restriction ceased to apply five years from the date of the agreement. As this would be the case in any event for agreements which were entered into for periods of less than five years, no amendment was necessary to such agreements. In a letter of 8 April 1994, however, Burmah Castrol had stated that:

"...... the equipment in the case of a hire purchase agreement becomes the property of the hirer under the terms and conditions of the Hire Purchase Acts, 1946-1960 (as the law now stands). Within the balance of the five year term, the Company would propose to have the exclusive use of the equipment for its products".

28. The Authority is charged with deciding whether to issue a certificate or a licence to agreements notified to it. It accepts amendments to notified agreements and, where such amendments have been made, it decides whether the amended agreement satisfies the criteria for a certificate or licence. In this instance the parties have proposed some amendments following indications from the Authority that certain clauses in the notified agreements did not, in its view, meet the requirements for a licence. These various proposals have not fully dealt with the Authority's concerns. The Authority has therefore taken a decision in respect of the notified agreements as these are the agreements before it. For purposes of clarity it gives its views concerning the proposed amendments.

29. 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.

30. 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.

31. The two main restrictions in the existing equipment loan agreement are:

(a) the equipment shall be used exclusively for the dispensing of Castrol products; and

(b) the equipment shall be returned should the recipient cease to purchase his total requirements of lubricating oils and greases from Castrol.

32. The equipment which is the subject of the loan agreements is owned by Burmah Castrol, is loaned to the dealer, and may be reclaimed by Burmah Castrol if the agreement is terminated, or if the dealer ceases to purchase Castrol products exclusively. While no time limit has been placed upon the duration of the agreement, Burmah Castrol have claimed that it could be terminated by the dealer at any time after giving reasonable notice. While the value of the equipment is fairly small in some cases, it is substantial in others.

33. Since the equipment supplied is owned at all times by Burmah Castrol, they have a significant proprietorial interest in the equipment. The Authority quite clearly accepts that Section 4(1) does not call into question the existence of the

property right. The exercise of a property right, however, may be anti-competitive in nature, and may therefore fall within the scope of the activity prohibited by Section 4(1).

34. Suppliers of goods for resale do not usually also supply equipment for the storage of the goods or from which they are dispensed or sold. Where such equipment is supplied, however, there is often a requirement that the equipment be used exclusively for the supplier's goods, and not for other goods, particularly competing goods. Recent cases in respect of Article 85 of the Rome Treaty have involved the exclusive use of ice cream freezer cabinets and are of considerable relevance. The producers of Mars ice cream complained to the EC Commission that the two main German ice cream manufacturers were preventing access by Mars to the market by requiring resellers to sell their products exclusively from freezer cabinets supplied and owned by the suppliers, and also by requiring that dealers purchase exclusively from one supplier. In Ireland, Mars brought an action against HB Ice Cream Ltd (a subsidiary of Unilever, as is one of the German firms) alleging infringements of Articles 85 and 86 of the Treaty because of the requirement of freezer exclusivity by HB. (HB also brought a counter-claim against Mars). The EU Commission, by decision of 25 March 1992, took interim measures against the German firms, primarily against the exclusive purchasing requirement. This decision was not published in the Official Journal, and is the subject of an appeal to the EU Court of First Instance. Final decisions in the cases were taken by the EU Commission on 23 December 1992, ruling against the exclusive purchasing requirements. [3]

35. In the High Court cases, judgment was delivered by Keane J On 28 May 1992 (not yet reported), in the course of which he said:

´At the outset, two points should be noted. First, the fact that the impugned term is unarguably intended to prohibit the retailer from stocking other products in the cabinet does not of itself mean that the term is automatically void under Article 85(2)......

In the case of the agreements in issue here, one of the principal objects is to ensure that H.B.'s competitors do not obtain an advantage over them by obtaining cabinet space for the display and storage of their products for which they have not had to pay and which is provided to them free of charge by H.B. This cannot be regarded as an inherently anti-competitive objective......

Again, in this context, the fact that the agreements do not prevent the retailers from selling competing products is of great importance, since in outlets where there is room for more than one cabinet the exclusivity term of itself cannot have the effect of excluding competitors. Even in outlets where there is room for only one cabinet, there is nothing to prevent the retailer from terminating the agreement at any stage and either buying a cabinet himself to stock any brands he wishes or obtaining a cabinet from another supplier.......

Far from being a supplementary obligation which has no connection with the subject of such a contract, the exclusivity term is of the essence of the contract, since where the cabinet is supplied free of charge the whole purpose of the contract would be frustrated from the supplier's point of view if such a term were not to be included.

I have, accordingly, come to the conclusion that Mars have failed to establish that the agreements in question are prohibited by Article 85(1) and that hence they are not void by reason of Article 85(2)........

The cabinets are supplied by H.B. for one purpose alone, the storage and display of their products. If they were available to all comers without restriction, then it seems to me that

their property rights would have been very significantly eroded indeed'. [4]

It is understood that the judgment has been appealed to the Supreme Court.

36. In the EU decisions on exclusive purchase agreements for ice cream, mentioned in para. 34, the Commission referred in the following manner to exclusive use of freezer cabinets:

'(134) An exhaustive account of all the barriers to entry to the relevant market will not be attempted here (other examples would be the technology and know-how needed for the production of impulse ice-cream and the consumer preferences which have built up after many years of experience and advertising); but special mention should be made of the insulating effect on the relevant market as a whole of the restrictions on the use of the freezer cabinets which are everywhere supplied to retailers by the established manufacturers (recital 55).

(135) Clearly, retailers are allowed the use of these freezer cabinets, which are needed for the sale of impulse ice-cream, without having to bear the cost, or at any rate the entire cost, so that by giving up their commercial freedom they avoid having to make the corresponding investments themselves. Even competitors who are ready and willing to follow this customary trade practice are restricted in the competition they can offer. They must persuade dealers either to replace their freezer cabinet or to install further cabinets.

(136) A trader who replaces his freezer cabinet must give up selling the products of his current supplier. He will not do so if the current supplier, like SLG, is strong on the market, and the competitor is less well known or offers only a partial range which does not provide a full alternative to the earlier one.

(137) The possibility of installing further cabinets is limited: there may be no space available, or what space there is may be used for commercial purposes other than the sale of ice-cream. In the traditional trade there will be many sales outlets with no space for further cabinets. It might be thought that in other shops space could surely be found somewhere for a freezer cabinet, even if only a small one, as a general rule; but in fact this view seriously misjudges the constraints under which grocery retailing in particular operates. Firstly, impulse ice-cream cannot be put on offer just 'somewhere'; it is intended for immediate consumption, and must be displayed very close to the check-out desk. And every section of the total surface of a retail store generally has a specific function. The existing freezer cabinets are already geared to the outlet's total requirements. Nor can it generally be expected that sales of ice-cream will increase substantially if further cabinets are installed. The effort and space devoted to a new cabinet is lost to other commercial purposes, without securing additional turnover'. [5]

37. The essential feature of the arrangements under review is that Burmah Castrol supplies equipment to another party in return for which the latter agrees to use the equipment exclusively for Castrol products. An obligation on a reseller to use equipment supplied by the supplier only for the storage and sale of the supplier's goods would not, in the view of the Authority, per se offend against Section 4(1), unless it had the effect of ensuring that only the goods of that supplier could be sold by the reseller. The use of equipment for the goods of a competitor results in the latter getting a 'free ride' in, and a competitive advantage from, the use of equipment for which the competitor did not pay. If exclusive use of the equipment, however, meant, in a particular set of circumstances, that the goods of only one supplier could be handled by the reseller, this would amount to exclusive purchasing. The reseller could not purchase competing goods from other suppliers, nor could competitors sell to that reseller. As in the Esso case [6] the Authority considers that exclusive purchasing agreements generally offend against Section 4(1) (see also para. 40). There can be no general presumption under the Competition Act either in favour or against exclusive use of equipment obligations, and each case must be examined on its merits in the light of the prevailing economic circumstances.

38. In the present case, the requirement that the equipment only be used for the dispensing of Castrol products, while it means that it cannot be used for the products of competitors, does not necessarily have the object or effect that the user of the equipment must purchase lubricating oils exclusively from Castrol. While in many workshops there would be space for the installation of equipment for storing and dispensing the oil of one or more competitors, equally, in many instances there would not. What space there is may be better used for other commercial purposes. The existing equipment may be geared to the outlet's total requirements, and it cannot be expected that sales of lubricants would increase if additional equipment were installed. While workshops could return the loaned equipment, they face strong disincentives to doing so. It would be possible to stock the products of competitors which are supplied in small containers, but this might not provide effective competition to oil from dispensing equipment, since it would be less convenient and would be more costly. In these circumstances, the Authority considers that the exclusive use of equipment requirement would in many cases represent an exclusive purchasing requirement. The agreement to supply equipment provided it is used exclusively for Castrol lubricants, therefore, offends against Section 4(1). (See also para 40). In addition, the Authority is concerned that the equipment loan agreement with the exclusive use of equipment provision appears to be of indefinite duration, and that there are no provisions for early termination by the workshop. Burmah Castrol has stated that the borrower would presumably be entitled to terminate the loan on giving reasonable notice. In the circumstances, given the preference which would be likely to be afforded to Castrol products by virtue of the loan of the equipment, the Authority considers that the agreement, which is of indefinite length and has no clear and brief period of notice for termination, is likely to amount to foreclosure of the products of competitors, and so for these reasons also it offends against Section 4(1).

39. The second part of the restriction goes much further than requiring exclusive use of equipment supplied by Burmah Castrol. It obliges the customer to return the equipment should he cease to purchase his total requirements of lubricants from Castrol. This carries the clear implication that, if the equipment is retained, there must be exclusive purchase of Castrol lubricants. Since Castrol lubricants could still be obtained on a non-exclusive basis if the equipment had been removed, or had not been supplied by Burmah Castrol in the first place, the net effect is that the loan of the equipment by Burmah Castrol has the effect of securing the exclusive purchase of Castrol products, according to the wording of the agreement. This view is reinforced by the fact that the equipment is not vital for the storage and sale of lubricants, as evidenced by the fact that many resellers do not have such equipment, and it is not necessary for it to be provided only by the lubricant supplier.

40. As mentioned above, the Authority stated in the Esso case (p. 11) that a solus dealer 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. Furthermore, in the case of lubricating oil, consumers go to the workshops in question primarily to have their car serviced, and the supply of oil is only incidental. They do not select a workshop on the basis of the oil supplied, but, once they have chosen the outlet, they have no choice of oil brands where the outlet must purchase one brand exclusively. Such a restriction on consumer choice also constitutes a restriction on competition. Notwithstanding the fact that resellers are free to return the equipment at any time, there would be a disincentive for them to do so, even if they were aware of the possibility, since it is of value to them and might have to be replaced at their expense. The exclusive purchasing tie is not limited in duration, and lasts for as long as the equipment is loaned, which could be a very long period, particularly if it is replaced from time to time. In addition, sizeable numbers of important customers (146) are party to the loan agreements (and many others are party to the other Castrol agreements). While a short-term exclusive purchasing agreement with a single customer would be unlikely to have much impact in the market for lubricants, a network of such agreements with many major customers with an indefinite duration would have a significant impact. The effects are reinforced when the agreements concern the leading firm, and by far the largest supplier, in the market, and when other major suppliers, according to Burmah Castrol, also have exclusive purchasing requirements. The Authority considers that the obligation to return the equipment unless total requirements of lubricants are obtained from Castrol is a restriction upon competition and therefore offends against Section 4(1). Burmah Castrol has stated, however, that it has not interpreted this clause as giving exclusivity of supply, but the wording nevertheless remains in the agreement.

41. In their submissions, Burmah Castrol drew attention to the judgment of the Court of Justice in the case of Delimitis v Henniger Brau. [7] The Authority agrees with the Court that an exclusive purchasing agreement must be considered in its economic and legal context, and as part of a network of such agreements by one supplier, and, if necessary, as part of a series of networks of several suppliers, as part of its overall assessment. It agrees with the view of the Court that access to the market or increasing market share by competitors must be made difficult, because of the cumulative nature of such agreements, and that the agreement in question must make a significant contribution to the sealing-off effect produced by the totality of these agreements, in order for Article 85(1), and therefore Section 4(1), to be applicable. Following this judgment, the EU Commission modified the notice concerning Regulations 1983/83 and 1984/83 by providing that beer supply agreements would not fall under Article 85(1) if, in particular, the market share of the individual brewer did not exceed more than 1 per cent of the national market for the resale of beer in on-licensed premises. [8]

42. It is clear that, however narrow or broad a definition is adopted of the market for lubricating oil, Burmah Castrol has a market share vastly in excess of 1 per cent. It occupies the leading position without question in the supply of lubricating oil. The agreement has the effect of securing to Burmah Castrol the exclusive right to supply a significant proportion of both franchised and non-franchised outlets, and thereby of denying access to them by competitors for a lengthy period. Burmah Castrol has stated that other suppliers of lubricants also have exclusive arrangements, and, notwithstanding the fact that a number of workshops might have no exclusive arrangements, a sizeable number would be tied to one or other of the major suppliers of lubricants, including, in all probability, the most important outlets, for a lengthy period of time. The Authority does not consider that the Henniger Brau judgment provides any grounds for considering that the notified arrangements do not offend against Section 4(1).

43. Burmah Castrol, having been made aware of the Authority's concerns, made suggestions for amendments to the equipment loan agreement, but these were not regarded as acceptable. Following the issue of the Statement of Objections, Burmah Castrol suggested further amendments. Since these would still involve exclusive use of Castrol products in the equipment, they also would offend against Section 4(1). The deletion of the clause requiring return of the equipment if total requirements are not purchased from Burmah Castrol, however, would satisfy the concerns of the Authority in respect of this matter.

44. The main feature of the existing hire purchase agreement is that the equipment shall be used exclusively for stocking and supplying only Castrol products purchased direct from the owner, and the hirer shall not keep or allow to be kept in the equipment, or use or allow to be used with the equipment, any lubricants other than Castrol.

45. The equipment which is the subject of these agreements is initially supplied by Burmah Castrol, but is supplied on foot of a hire purchase agreement. The hirer makes regular payments to Castrol, and eventually bcomes outright owner of the equipment. While most hire purchase agreements last for five years or less, almost a quarter have a duration of ten years. All agreements carry a low rate of interest, varying from 0% to 5%, which is very low compared with standard hire purchase interest rates. The loans vary from the small to the large. The customer might otherwise be unable to borrow such sums, and would certainly face a much higher rate of interest, and often a shorter repayment period, both contributing to much higher loan repayments.

46. Exclusivity relates to the use of the equipment solely for Castrol lubricants. Since, in the circumstances, this represents an exclusive purchasing requirement, the exclusive use requirement is regarded by the Authority as offending against Section 4(1)for the reasons stated earlier.

47. The amendments proposed by Burmah Castrol in response to the Statement of Objections would still involve exclusive use of the equipment, and so the agreements would continue to offend against Section 4(1).

48. 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'.

49. In the opinion of the Authority, the existing equipment loan and hire purchase agreements do not fulfil the conditions necessary for the grant of a licence under Section 4(2) of the Act. At indicated above, the Authority considers that the following provisions in these agreements offend against Section 4(1):

(a) obligations which constitute exclusive purchasing of lubricants; and

(b) obligations to use the equipment exclusively for Castrol products.

At the same time, the Authority considers that these agreements would fulfil the conditions for a licence if there were no provision for exclusive purchase of Castrol products, and if the period of exclusive use of equipment were limited in duration.

50. The Authority considers that the requirement in the existing equipment loan agreement to return the equipment, if the workshop ceases to purchase its total requirements of lubricating oils from Burmah Castrol, constitutes an exclusive purchasing requirement. The Authority recognises that restraints in vertical agreements, that is, for example, in agreements between buyers and resellers, can have pro-competitive features. Restraints such as exclusive purchasing can produce efficiency gains, more effort from retailers into selling products and thus higher sales, the provision of expert advice, and the provision of costly equipment and improved levels of service, among others. These benefits do not, however, automatically result from vertical agreements.

51. In the case of the Burmah Castrol agreement, the Authority does not consider that there are any benefits in the way of economies of bulk distribution, since the agreements relate to only a small proportion of Burmah Castrol's lubricants for resale and deliveries appear to be in relatively small volumes. There would appear to be no, or only a minimal, reduction in distribution costs which could be shared with consumers. The Authority recognises, however, that in some cases high quality equipment has been supplied on foot of these agreements, and that Burmah Castrol does provide a high quality of technical services. These promote technical progress. The Authority considers, however, that these benefits, part of which accrues to consumers, do not derive from the exclusive purchasing obligation. The equipment could be supplied by the workshop itself, and Castrol supplies many outlets, the majority in fact, and provides its technical services, without supplying any equipment or finance, and without requiring exclusive purchasing. In addition, two existing agreements - the cash loan and hire purchase agreements - do not contain any explicit exclusive purchase requirement. Such a requirement, therefore, is not indispensable to secure any benefits from the supply of lubricants or the provision of equipment. While recognising that these agreements only apply to a minority of outlets, and that lubricating oil forms only a small part of the total servicing operation carried out by these workshops, the Authority nevertheless considers that there is a risk that this type of restriction, if permitted, would be applied in all Burmah Castrol agreements, and in those of other suppliers, leading to a situation of foreclosure against new suppliers. The Authority considers that such agreements could afford undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. Since the essential conditions of Section 4(2) have not been satisfied, a licence cannot be granted in respect of the notified equipment loan agreements.

52. Both the existing equipment loan and hire purchase agreements contain an explicit requirement that the equipment be used exclusively for Castrol lubricants. As explained above, the Authority considers that such exclusive use of equipment requirements, in the circumstances, represent exclusive purchasing requirements in return for the loan of equipment or money. Nevertheless, the Authority can take a more favourable view of such arrangements than of exclusive purchase arrangements on their own.

53. As before, the Authority does not consider that equipment exclusivity produces any economies in distribution. It accepts that in some cases high quality equipment has been supplied, and that high quality technical services are provided by Burmah Castrol, and that these benefit consumers. An interest rate subsidy is provided in the case of the hire purchase loan, and equipment is provided in the other case. It is likely that the particular equipment supplied or financed would not have been installed in the workshops unless exclusive use of the equipment had been a requirement. Burmah Castrol would have been unlikely to provide such loans or equipment if they could have been used freely for competitive products. In this respect, exclusive use for a period of time can be regarded as indispensable to securing the benefits from the supply of the equipment, which may be shared fairly with consumers.

54. Nevertheless, the two agreements still have a foreclosure effect, because they represent exclusive purchasing, and thus they have the possibility of substantially limiting competition. In the case of the hire purchase agreement, however, the problem of foreclosure is considerably reduced since the equipment becomes the property of the workshop once the agreement has terminated. At that stage, the equipment can be used for any lubricants of the workshop's choosing. The Authority considers therefore that if the period of the exclusive use of equipment requirement were limited to the period of the hire purchase loan, or to five years, whichever was the shorter, this would not afford the possibility of eliminating competition to a substantial degree. In these circumstances, since all the conditions of Section 4(2) would have been fulfilled, a licence could be granted for the agreement. An exclusive use requirement for any longer period, however, would not satisfy all the conditions of Section 4(2), since it would afford the possibility of eliminating competition and would not be indispensable, and could not be licensed.

55. On the other hand, the position differs in respect of the equipment loan agreement. This is granted without a definite duration, and with no provision for termination by the workshop. The equipment never becomes the property of the workshop, and can never be used for the products of a competitor. It can be replaced from time to time, thus extending the period of exclusive use, and hence of exclusive purchase. In the view of the Authority, this presents the danger of long-term foreclosure of the market to competitors' products. It applies in a large number of cases, and cannot be regarded as insignificant in its effects. Indeed, it can be argued that the loan of equipment is not indispensable, since Castrol could ensure the provision of equipment by making a loan to the workshops by way of cash or hire purchase, so that the workshops could purchase the equipment themselves. In the view of the Authority, therefore, the equipment loan agreement fails to satisfy all the requirements of Section 4(2), and cannot be granted a licence.

56. The Authority, however, considers that this possibility of eliminating competition might be avoided if a five year time limit were placed upon agreements for the loan of equipment, after which the workshop would have the option of purchasing the equipment at its written down value or of returning the equipment to Burmah Castrol. A new agreement could be made at the end of the five year period, with an exclusive requirement on the use of the equipment when new equipment is installed. There is unlikely to be as much competition to secure an arrangement with a workshop on the expiry of an oil agreement as there is for petrol dealers on the expiry of a solus agreement, which is why the Authority considers that the option to purchase the equipment is important. Burmah Castrol may, in addition, supply equipment free, with no exclusive use obligation, or supply it on cash or hire purchase loan terms, where the exclusive use tie could last for a maximum of five years, after which the equipment would become the property of the workshop and could be used for Castrol products or the lubricants of any competitor. The conclusion of the Authority that the equipment loan agreement does not satisfy the conditions of Section 4(2), therefore, does not mean that Castrol cannot supply equipment to the workshops in question.

57. While the amendments proposed by Burmah Castrol in response to the Statement of Objections have gone some way to meet the concerns of the Authority, they are not sufficient, after a lengthy period of negotiation, to satisfy the requirements of Section 4(2). In the case of equipment loan agreements which have already been in existence for five years or more, Burmah Castrol has proposed that, if the option to purchase or return the equipment is not exercised, the agreement and the exclusive use of equipment requirement would remain in force for as long as the equipment was on loan. In addition, Burmah Castrol proposed that the workshops be given six months to exercise this option. The Authority considers that any agreement which involves exclusive use of equipment should be terminated no later than at the end of five years from the date of its commencement, and that agreements of a longer duration cannot be licensed. In the case of those equipment loan agreements which were made less than five years ago, Burmah Castrol has proposed that the exclusive use requirement should be limited to five years, which is, at first sight, acceptable to the Authority. They propose, however, to allow the option of purchase or return only upon request. At the end of the five year term, therefore, Burmah Castrol appears not to be obliged to give the option to the workshop, but the latter must request that this option be given. In the absence of the request, the agreement continues in existence. It is possible, at least, that the workshop would consider itself bound to use the equipment exclusively for Burmah Castrol products after the expiry of the five-year period. The Authority considers that the suggested amendments would not satisfy the conditions of Section 4(2), since they would involve exclusive use of the equipment for a period in excess of five years.

58. In the case of the hire purchase agreements, Burmah Castrol has proposed to limit the period of exclusive use of equipment to five years where the agreement was for a period of five years or longer. This would be acceptable to the Authority. In the case of agreements with a shorter duration, however, Burmah Castrol has proposed to have the exclusive use of its equipment 'within the balance of the five year term'. They would appear to be requiring exclusive use for five years, even where the agreement was for a lesser period, and after it has become the property of the hirer. The Authority considers that these suggested amendments also would not satisfy the conditions of Section 4(2) in respect of the standard hire purchase agreement.

59. Burmah Castol and their customers who are party to the standard equipment loan and hire purchase 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 the notified agreements have the object or effect of preventing, restricting or distorting competition, that they offend against Section 4(1) of the Act, and that they do not satisfy the conditions set out in Section 4(2) of the Act, in the following respects:

(i) the existing equipment loan agreement

- the requirement that the equipmnt shall be used exclusively for the dispensing of Burmah Castrol products; and

- the requirement to return the equipment if the borrower ceases to purchase his total requirements of lubricants from Burmah Castrol; and

(ii) the existing hire puchase agreement

- the obligation in some agreements for exclusive use of Burmah Castrol lubricants in the equipment for a period which exceeds five years.

Accordingly, the Authority refuses to issue a certificate or grant a licence in respect of the existing equipment loan agreement (CA/38/92E) and the existing hire purchase agreement (CA/37/92E) notified on 8 June 1992 under Section 7 of the Competition Act, 1991 by Burmah Castrol (Ireland) Ltd.

2. OJ No. L173, 30.6.83, p. 5, and Explanatory Notice, OJ No. C101, 13.4.84, p.2.

3. Commission decisions of 23 December 1992 under Article 85 - Scholler Lebensmittel GmbH & Co. KG, OJL 183, 26.7.93, p.1; and Langnese-Iglo GmbH, OJL 183, 26.7.93, p. 19.

4. The High Court. Cases between Masterfoods Limited trading as Mars Ireland and H.B. Ice Cream Limited, and between H.B. Ice Cream Limited, and between H.B. Ice Cream Limited and Masterfoods Limited trading as Mars Ireland. Judgment of Keane J., delivered on 28 May 1992, not yet reported.

5. Scholler Lebensmittel, op.cit, pp 15 and 16.

6. Decision No. 4 of 25 June 1992 - Esso Solus and Related Agreements, p. 11.

7. Judgment of the Court of Justice of 28 February 1991 in the case of Stergios Delimitis v Henniger Brau AG. [1991] ECR I - 935.

8. Commission notice modifying the notice concerning Regulations No. 1983/83 and No. 1984/83. OJ C121, 13.5.92, p. 2.