Irish Competition Authority Decisions

1. Notification was made to the Competition Authority on 8 June 1992 of a standard form agreement regarding the loan of cash by Burmah Castrol (Ireland) Ltd to purchasers of its lubricating oils. The notification requested a certificate under Section 4(4) of the Competition Act, 1991, or, in the event of a refusal by the Competition Authority to issue a certificate, a licence 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 agreement which are acceptable to the Authority. Notice of intention to grant a licence was published in the Irish Times on 11 November 1994. There were no submissions from interested parties.

2. The notification relates to a new standard form agreement concerning a cash loan for the purchase of lubricating equipment provided by Burmah Castrol (Ireland) Ltd to certain resellers of lubricating oils. The earlier version of the cash loan agreement was also notified to the Authority. Since it did not offend against Section 4(1) of the Competition Act, the Authority issued a certificate in respect of that version of the agreement. [1] Agreements relating to the supply of equipment on hire purchase and the loan of equipment by Burmah Castrol were also notified to the Authority, and these are the subject of a separate decision refusing the issue of a certificate or the grant of a licence. [2]

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 standard 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. By January 1993, three new loan agreements, had been made, two of them with workshops which had existing agreements. At the end of September 1992, about 250 customers had cash loans, equipment loans or hire purchase terms from the company. A further six hundred customers were also being supplied on Burmah's standard terms and conditions.

5. The product with which the notified agreement is concerned consists of lubricants, that is any oil-based product which is used for the lubricating of a motor vehicle. While the agreement refers to 'additives' as well, Burmah has stated that it does not sell additives. 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. Other lubricating products and additives, with much smaller sales, include transmission fluids, brake fluids, anti-freeze and greases.

6. 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.

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 various notified agreements. Of the non-franchised workshops, Burmah Castrol supplies a very high proportion, nearly 25% of these being supplied under these 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. The new cash loan agreement is used where Burmah Castrol lends money to finance the purchase of lubricating equipment. The agreement provides for the amount of the loan, the interest rate and repayment over a specified period. It also provides for exclusive use of Burmah Castrol lubricating oil and other products on the premises. The first of the agreements made is dated 2 September 1992. Its main provisions are as follows:

(1) The company carries on and intends hereinafter to carry on the business of vehicle servicing and maintenance at:

("the premises") which expression means all that part of the said land now used or intended to be used for the purpose of the said business and includes any adjoining or neighbouring land which shall during the currency of this Agreement be used for the servicing and maintenance of vehicles by or for the benefit of the company. (Clause 1)

(2) The company agrees that this loan money advanced by Burmah Castrol (Ireland) Limited is to be used by the company to finance motor vehicle lubrication facilities, including lubrication equipment, to be used by the company to carry on the business of servicing and maintenance of motor vehicles at the premises. (Clause 2)

(3) During the currency of this agreement the company shall use exclusively on the premises, lubricants, additives and brake fluids ("lubricant products") supplied by

Burmah Castrol (Ireland) Limited and shall not cause, allow, permit or procure any other company or person to use or stock for use at the premises, lubricant products obtained from any other supplier. (Clause 3)

(4) 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 immediately on written demand by Burmah Castrol (Ireland) Limited 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 5)

(5) This agreement shall remain in force for a period of years from the date hereof. (Clause 6) (Burmah Castrol has stated that the maximum period of the new loan agreement is five years).

16. 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. [3] The regulation entered into force on 1 July 1983 and it expires on 31 December 1997.

17. 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.

18. 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.

19. Burmah Castrol made the following observations in relation to all its 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.

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.

20. 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 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 within 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'.

21. 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 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 to the new cash loan agreement. They enclosed a draft letter, which contained the following:

'Following discussions with the Competition Authority, we have agreed to amend clause 3 of the Agreement. As currently drafted, clause 3 prohibits you from using on the premises lubricant products supplied by anyone other than the Company.

The new provision is as follows:-

"During the currency of this Agreement the Company shall use the equipment and facilities purchased pursuant to clause 2 exclusively for dispensing lubricants and brake fluids ("lubricant products") supplied by Burmah Castrol (Ireland) Limited".

The rest of the Agreement as at the date hereof is confirmed and is unaffected by these changes.'

Burmah Castrol also stated that the notified standard form agreement did not indicate the term. This was to give them a flexibility to enter into agreements for less than 5 years. All of the existing agreements were for 5 years, and no amendment was necessary in this regard. On 22 November 1994, Burmah Castrol provided evidence that the amendments had been agreed with a named reseller (Carroll and Kinsella Motors (Churchtown) Ltd) on 14 November 1994.

22. 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.

23. 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.

24. The essential feature of the new cash loan agreement is that, in return for a cash loan at a reduced rate of interest, the recipient shall use exclusively on the premises lubricants supplied by Burmah Castrol during the term of the agreement, and shall not use or stock for use lubricants obtained from any other supplier. The agreement is limited to a period of five years. While only three such agreements had been made up to early January 1993, it is understood that this agreement will replace the existing cash loan agreement in the future. 'Premises' is defined as the whole premises occupied by the workshop, and the agreement covers additives as well as lubricants.

25. The existing agreement contained no restriction of any kind on the recipient, but the new version amounts to an exclusive purchasing agreement for Castrol lubricants, and implicitly it involves exclusive use of the equipment which has been bought on foot of the loan. The equipment is quite clearly the property of the customer, though there is a contribution to its financing by Burmah Castrol. Equally clearly, the wording has been derived from Regulation 1984/83, where such a restriction was permitted, but only in the context of an exclusive purchasing agreement for motor fuels which satisfied the conditions of the Regulation. The present agreement is not associated with such an agreement for motor fuels, and must be examined on its own merits.

26. While the Regulation permits a requirement of exclusive use within the service station of lubricating equipment which has been made available or financed by the petrol company, the dealer must be allowed to sell competing lubricants. In adopting this approach in the category licence for motor fuels, the Authority has explained that it understands that the Regulation does not permit the use of competing lubricants for servicing of cars or for regular topping up on the forecourt, but that competing lubricants may be sold to the motorist for topping up if specifically requested, and they may be sold for use by the motorist elsewhere. [4] The dealers involved in these Castrol agreements, however, do not usually sell petrol, or oil for topping up, and their primary business is servicing cars, including oil changes, and so the restriction on the use of competing lubricants is virtually absolute.

27. The new agreement effectively requires exclusive purchase of Castrol products. Since competing lubricants cannot be used in the premises for the primary business of the dealer - the servicing of motor vehicles - they cannot be purchased by the dealer either. The Authority stated in the Esso decision [5] 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. 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 similar agreements with many major customers with a long 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. For these reasons, in the opinion of the Authority, the notified agreements offend against Section 4(1) of the Competition Act.

28. The agreement defines premises as being the whole premises used or to be used for the purpose of the business of motor vehicle servicing and maintenance. If a lubricating bay or equipment is financed by means of this cash loan agreement, the exclusive use is not confined to the bay or the equipment, but it applies to the whole premises. Contrary to the claim by Burmah Castrol, it would not be possible in these circumstances for there to be, in the same premises, one lubrication bay supplied with the assistance of Burmah Castrol and one financed by another supplier, or indeed one financed by the reseller where competing products were used. In addition, Burmah Castrol has submitted that the restriction of the use of other lubricants on the premises is necessary to give effect to the exclusive use of equipment provision, there being no other effective way of policing the latter provision (see para. 19).

29. In their submissions, Burmah Castrol drew attention to the judgment of the Court of Justice in the case of Delimitis v Henniger Brau. [6] 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 EC 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. [7]

30. 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. While only three new loan agreements have been made to date, Burmah Castrol has indicated that this restrictive clause will be included in all future cash loan agreements, and also in amended versions of the equipment loan and hire purchase agreements. Such a policy would have 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 - five years being proposed by Burmah Castrol. 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 considers that the Henninger Brau judgment does not provide any grounds for considering that the notified arrangements do not offend against Section 4(1).

31. While the new cash loan agreement relates primarily to lubricants, it also refers to additives, even though Burmah Castrol has stated that it does not supply additives. The agreement thus has the effect of obliging the reseller to purchase additives exclusively from Burmah Castrol because Burmah Castrol has assisted in the financing of equipment for lubricating oils. This would appear to fall under Section 4(1)(e) of the Act, which prohibits agreements which 'make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of such contracts'. Since Burmah Castrol does not supply additives, the obligation has no meaning. Nevertheless, it is included in the agreement and the Authority considers that this obligation offends against Section 4(1).

32. Under the amended agreement, the clause requiring exclusive use of Castrol lubricants on the premises is deleted and is replaced by a requirement that the equipment whose purchase is financed by the loan should be used exclusively for dispensing lubricant products supplied by Burmah Castrol. This requirement is similar to that in other Burmah Castrol agreements, particularly those under which they have loaned equipment to the workshop. In those cases, the equipment is owned at all times by Burmah Castrol and they have a significant proprietorial interest in the equipment. In the new loan agreements, however, the equipment is owned by the workshop at all times, and Burmah Castrol has merely provided a cash loan, at a low rate of interest, which must be repaid within five years.

33. Suppliers of goods for resale do not usually also supply equipment, or help to finance the purchase of equipment, for the storage of the goods or from which they are dispensed or sold. Where such equipment is supplied or financed, 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 some relevance. The producers of Mars ice cream complained to the EU 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). Reference was made to this case by Burmah Castrol. 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. [8]

34. In the High Court cases, judgment was delivered by Keane J on 28 May 1992 ([1993] ILRM 145), 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'. [9]

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

35. In the EU decisions on exclusive purchase agreements for ice cream, mentioned in para. 33, 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'. ¹[0]

36. The essential feature of the arrangements under review is that Castrol helps to finance the purchase of equipment by 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 or financed 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, the Authority considers that exclusive purchasing agreements generally offend against Section 4(1). 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.

37. In the amended agreement, 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 finance the purchase of equipment, provided it is used exclusively for Castrol lubricants, therefore, offends against Section 4(1).

38. The notified agreement required the exclusive use of additives, which was considered to offend against Section 4(1). The deletion of the reference to additives eliminates the concerns of the Authority in this regard.

39. 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'.

40. In the opinion of the Authority, the new cash loan agreement notified by Burmah Castrol did not fulfil the conditions necessary for the grant of a licence under Section 4(2) of the Act. The amended agreement, however, is regarded as satisfying the conditions for a licence.

41. As stated above, the Authority considers that the requirement in the new cash loan agreement for the exclusive use of Castrol lubricants on the premises 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.

42. In the case of the Burmah Castrol new cash loan 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 high quality equipment has been part-financed 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 of the 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 can not be granted in respect of the notified agreements.

43. The amended new cash loan agreement provides that the equipment which is financed by the Burmah Castrol loan should be used exclusively for the dispensing of Castrol lubricants during the currency of the agreement, which has a term of no more than five years. 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 money. Nevertheless, the Authority can take a more favourable view of such arrangements than of exclusive purchase arrangements on their own.

44. As before, the Authority does not consider that equipment exclusivity produces any economies in distribution. It accepts that 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 cash loans. It is likely that the particular equipment 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 if the equipment 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.

45. Nevertheless, the new cash loan agreement still has a foreclosure effect, because it represents exclusive purchasing, and thus it has the possibility of substantially limiting competition. If the agreements lasted for a long period of time, the foreclosure effect would be considerable. In the case of the amended agreements, however, the problem of foreclosure is considerably reduced since, once the agreement terminates at the end of five years or less, the equipment can then be used for any lubricants of the workshop's choosing. In these circumstances, provided that the period of exclusive use of the equipment does not exceed the period of the loan and that the loan does not exceed five years in duration, the Authority considers that this would not afford the possibility of eliminating competition to a substantial degree. Since all the conditions of Section 4(2) have been fulfilled by the amended new cash loan agreement, a licence can 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.

46. Given that agreements of up to five years' duration are involved, the Authority considers that the appropriate period for the licence should be ten years. Since the agreement was notified under Section 7(1), in accordance with Section 7(3) the licence can be made retrospective to the date when it satisfied the conditions of Section 4(2), that is the date on which the amendments were made. The licence shall apply from 14 November 1994 to 13 November 2004. It is not considered necessary to attach any conditions to the licence.

47. Burmah Castrol and their customers who are party to the standard form new cash loan agreement are undertakings within the meaning of the Competition Act. The notified agreement is an agreement between undertakings, and it operates within the State. The Authority considers that the notified new cash loan agreement offended against Section 4(1) of the Competition Act, and that it did not satisfy the conditions set out in Section 4(2) of the Act. The Authority considers, however, that the agreement, as amended to provide for exclusive use of the equipment for Castrol products for a limited period, not exceeding five years, offends against Section 4(1) of the Act but that it satisfies the requirements of Section 4(2). Accordingly, the Authority grants a licence to the standard form new Burmah Castrol cash loan agreement, as amended, for a ten year period from the date when the agreement was amended to satisfy the requirements of Section 4(2) of the Act.

48. The Competition Authority grants the following licence:

The Competition Authority grants a licence to the new standard form Burmah Castrol cash loan agreement (notification no. CA/43/92), notified on 8 June 1992, under Section 7(1), as amended by the agreement of 14 November 1994 between Burmah Castrol and Carroll and Kinsella Motors (Churchtown) Ltd, 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 also apply in respect of the new standard form Burmah cash loan agreement where it has been amended to accord with the Carroll and Kinsella agreement.

This licence shall apply from 14 November 1994 to 13 November 2004.

1. Decision No. 324 of 5 May, 1994.

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

4. Category licence for motor fuels, 1 July 1993. Iris Oifigiuil, 9 July 1993, pp. 513-515, at Article 3(d).

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

6. 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 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.

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