B e f o r e :
THE VICE-CHANCELLOR
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| | Esso Petroleum Company Limited
| Claimant
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| | - and -
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| | Niad Limited
| Defendant
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Mr. Nicholas Green QC and Miss Helen Davies (instructed by Messrs Lovells for the Claimant)
Mr. David Christie (instructed by Messrs Ferdinand Kelly for the Defendant)
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HTML VERSION OF APPROVED JUDGMENT
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Crown Copyright ©
The Vice-Chancellor :
Introduction
The claimant (“Esso”) is the well known oil company. Amongst its other activities it sells motor fuels to the public through retail outlets owned by others. One such outlet was the Leyburn Service Station, Middleham Road, Leyburn, North Yorks, DL8 5EV. The owner of that site was and is the defendant Niad Ltd (“Niad”). A principal shareholder and director of Niad was and is Mr Nigel Walton (“Mr Walton”).
From 1988 to 1993 Niad had a solus agreement with BP. On 10th June 1993 Niad entered into a five year solus agreement with Esso which took effect in December 1993. In due course Esso became concerned at the extent to which some of its competitors were eroding the volume and profitability of its business. In January 1996 it introduced a marketing scheme called “Pricewatch” of which the essential elements were:
(1) Esso would carry out an extensive advertising and marketing campaign to the effect that the prices of fuel supplied to the motorist by its retailers were or were amongst the lowest.
(2) To enable that result to be achieved Esso would set up and maintain a computerised telephone service called “Priceline” whereby daily in the morning its retailers would report on the prices being charged by some of its closest competitors and in the afternoon the retailers would ring again and receive notification of any consequential change in the prices, described as “recommended”, which the retailer was obliged to implement and thereafter maintain.
(3) To finance such competition the retailer was to receive a margin, variable in accordance with the prices then in force, deducted from the delivery price of the fuel and the benefit of a stock value compensation scheme designed to enable him to lower his prices immediately, not only from the next delivery of fuel to him.
(4) The previous marketing scheme involving tiger tokens would be withdrawn.
Pricewatch was explained to the retailers at seminars held in a number of locations on 15th and 16th January 1996. Mr Walton attended the seminar held at Warrington on 15th January. He signed a document (“the Pricewatch Agreement”), to which I shall refer in greater detail later, in which, on behalf of Niad, he undertook to implement and maintain the recommended prices notified to him by Priceline without delay. He did not do so.
These proceedings were commenced by Esso in September 2000. Esso claims to be entitled to damages for breach of the contract with Niad it claims was made in January 1996. It quantifies its damage on the “expectation basis” as the profit it would have made on sales lost through Niad’s failure to perform its obligation. In the alternative it seeks an account of the profits made by Niad arising from such failure. As alternative to its claim in respect of breach of contract it claims a restitutionary remedy based on the amount charged by Niad in excess of the recommended prices.
Niad seeks to refute those claims on a number of varied bases. They may be summarised as follows: (1) there is no such contract as that relied on by Esso because of lack of mutuality, consideration and certainty; (2) any such contract is unenforceable because of breaches by Esso of terms both express and implied, the effect of the Unfair Contracts Terms Act and duress and coercion; and (3) the remedies of restitution or an account of profits are not available. On 5th June 2001 Master Bowles directed a trial on all issues of liability. It is to those issues that this judgment is directed.
The evidence consisted of relevant documents and oral evidence from Mr Szanto and Mr Wilson for Esso and Mr Walton, Mr Lloyd and Mr Parekh for Niad. Mr Szanto was the planning and economics manager in Esso’s Retail Division from 1994 to February 1996. In that capacity he had a supervisory role in the launch of Pricewatch. From February 1996 to January 1997 he was posted abroad. On his return to UK in January 1997 he took over as General Sales Manager for the north of the UK. Since January 2000 he has been Business Planning and Analysis Manager at ExxonMobil Fuels Marketing Europe. Mr Wilson has been an area manager in the retail division of Esso with responsibility for various Esso service stations in the north of England since 1985. From January 1997 to 30th November 1998 the Leyburn Service Station was one of those for which Mr Wilson was responsible. Mr Lloyd and Mr Parekh had no relevant evidence to give as neither of them had been involved in the contractual dealings between Esso and Niad or the conduct of the Leyburn Service Station and neither could be regarded as an expert.
I will refer as necessary to the evidence of Mr Szanto, Mr Wilson and Mr Walton when recounting the facts in the detail necessary to explain the submissions made to me on behalf of Niad, the response thereto of Esso and my conclusions on them. For present purposes I have no doubt that each of them was an honest witness, but that is not to say that I accept all the evidence of each of them.
Niad acquired the Leyburn Service Station in 1988 and from then until 1993 operated it in accordance with a solus agreement with BP. Leyburn is in Wensleydale. About ten miles to the east is Bedale. In Bedale there was, at the material time, a service station called Gills selling Texaco and then Fina petrol products. About nineteen miles to the south east of Leyburn is Ripon. In Ripon there was a Safeway Hypermarket which sold petroleum products under its own label. In addition to the Leyburn Service Station, Gills and Safeways there are in the area a number of independent filling stations but none of them is relevant to any issue before me.
On 10th June 1993 Niad entered into a five year solus agreement with Esso. It provided for Niad to buy all its requirements of motor fuels from Esso. The price was to be Esso’s wholesale Schedule Price to dealers at the date for delivery. The agreement provided for Niad to receive a rebate of 2.42 pence per litre calculated and payable quarterly in arrear and an additional rebate payable annually in arrear if total sales exceeded 3.3m litres.
Mr Walton explained that he was also concerned to obtain Esso’s assurance of a competitive wholesale pricing policy so as to maintain sales’ volume and a good margin on each litre sold to ensure the profitability of such sales. Mr Walton explained that his concerns were dealt with by an oral agreement with Mr Donagher, then Esso’s area manager, whereunder Gills was identified as the “marker site”, Esso’s recommended retail price was to be the same as that charged by Gills and that Niad should be allowed, in addition to the rebates I have mentioned, a dealer’s margin of 2.2 pence per litre. Mr Walton claimed that the oral agreement was legally binding between Esso and Niad. This was disputed by Mr Wilson, not because he had been involved in the making of the agreement, but on the grounds that agreements as to marker sites and dealer’s margins were in their nature variable. This is not an issue I have to determine. It is sufficient to assume, without deciding, that Mr Walton’s claim is justified to the extent that the marker site, the pricing policy with regard to it and the dealer’s margin would continue, as agreed, until further notice from Esso.
Deliveries of motor fuels by Esso to Niad pursuant to the solus agreement commenced in December 1993. From then until January 1996 the retail price charged by Niad was the same as that charged by Gills. In addition Niad obtained a dealer’s margin on its supplies from Esso of 2.2 pence per litre. This margin was deducted from the wholesale schedule price to dealers so that the invoice accompanying each delivery by Esso to Niad showed only the net price payable. This is to be contrasted with the rebates which were paid periodically after the event. The invoices were paid within three days of delivery by direct debit.
The commencement of the solus agreement between Esso and Niad coincided with increasing concern felt by Esso as to the effect of the competition it was facing from hypermarkets operated by such well known companies as Tesco, Sainsbury’s, Safeway and Asda. Pricewatch was devised to counter that competition. Before its introduction Esso carried out trials in Scotland and North East England on two different bases. The trial in Scotland involved a policy of pricing at one penny per litre above the lowest of its competitors’ prices whilst maintaining its tiger token scheme. The trial in North East England involved suspending the tiger token scheme and pricing “head to head”, that is to say charging the same as, its lowest competitor in the area. Pricewatch was a refined version of the trial conducted in North East England.
Pricewatch was launched nationally on 17th January 1996. The launch was preceded by a number of regional presentations by Esso to its retailers on 15th and 16th January 1996. The presentation was carefully scripted so that the same message should be given to all retailers, whichever presentation they attended, and was accompanied by slides and videos. The presentation itself fell into two parts, an introduction and a technical explanation. Following the presentation there were separate meetings of the respective area managers with the dealers in their area. The principal purpose of these meetings was to get the dealers to “sign up” to Pricewatch before they left.
As I have already mentioned Mr Walton attended the presentation in Warrington held on the afternoon of 15th January 1996. In his first witness statement Mr Walton said that he did not recall anyone reading from a script. In his second he accepted that they might have done but as he was sitting at the back of a crowded hall he could not see. By contrast both Mr Szanto and Mr Wilson stated that all presentations were conducted in accordance with the scripts. In addition there is a statement of Mr Keillor, admissible under the Civil Evidence Act, to the effect that he gave the technical presentation on the occasion attended by Mr Walton. He states that he and, so far as he knew, all other speakers used the scripts. I accept the evidence of Mr Keillor, Mr Szanto and Mr Wilson in this respect. Thus the best evidence of what Pricewatch consisted of and what Mr Walton was told at the presentation is contained in those scripts. Accordingly I should deal with them in some detail.
During the introduction the regional manager welcomed those present, took a brief look at the market and described how Esso had been losing market share to the hypermarkets. He then described the wide ranging strategic review Esso had launched and the lessons which had been learned. One of them was the importance of the price relative to local competition. The regional manager described the outcome of the two trials to which I have referred namely that “the head to head offering was the preferred option amongst our customers”. He explained why such a pricing strategy had to be modified slightly “without changing our overall objective, which is to present Esso customers with the lowest prices in their trade areas, including hypermarkets, 7 days a week”.
After a fifteen minute break the technical presentation was made to the dealers. The speaker explained that the presentation fell into various parts, including details of a new pricing system, a stock value compensation scheme, the dealer’s contribution and Esso’s advertising plans. I will deal with each in turn.
The pricing scheme involved the allocation of trade areas which defined the competitive sites against which the dealer would be priced. The dealers were informed that
“Your area manager has established trade areas for each of your sites. He’s identified the critical hypers – typically to a distance of 3 miles, but sometimes more, and has identified other critical stations typically within 1 mile. These will be your primary marker sites, against which our aim is clear – to be unbeatable. All other sites within 1 mile of your site – we will refer to them later as secondaries – that don’t directly affect your site, will also need to be checked, but we will not necessarily move price immediately in response to one of these. Details of your trade area will be given to you later today. Any issues relating to your area, or any other site specific pricing issues will need to be discussed with your area manager individually.”
The speaker then described how this was to be achieved through the new computer system called Priceline designed to receive daily price observations from the dealer so as to be able to move prices in hours not days. The dealer’s main commitment was described as carrying out daily price surveys of specified competitor sites and phoning Priceline to enter those prices. The reported prices were then to be reviewed by the Esso pricing group and
“once reviewed the new prices are then passed back to the pricing system which you will hear when you call back to check for any price changes later the same day.”
The dealers were told that
“If we are going to make the commitment to our customers that they can now rely on Esso always being amongst the lowest prices we need to check competitor prices each and every day. To match your commitment, and ensure same day response, Esso will review prices and operate Priceline 7 days a week. New recommended prices will be issued within a few hours of receiving your competitor observations.
The Priceline system was then explained in further detail.
The speaker then moved on to the stock valuation compensation scheme. This was designed to enable the dealer who had paid for his motor fuels at the price prevailing at the time of delivery to lower them immediately in response to the message from Priceline. An average stock figure was taken. Any reduction in the price (less vat) gave rise to an entitlement to a credit equal to the average stock figure multiplied by the amount of the reduction. If, by contrast, the price went up the dealer was debited with a sum equal to the average stock figure multiplied by the amount of the increase (less vat). The amount of the debit or credit was accounted for in the price for the next fuel delivery.
After explaining the method whereby the tiger tokens were to be phased out the speaker went on to deal with margins. It was explained that the strategy of consistently matching the lowest priced primary competitor would be very costly to Esso in terms of dealer’s margin and
“as a result we will be asking our dealer partners to contribute part of the margin as well, in order to participate. We have carefully structured your pricewatch contributions so they will only come in as prices and margins fall below normal.”
The speaker explained how the dealer’s margin contribution would work with the aid of a slide. The slide showed
“0.25 ppl: to coincide with collection withdrawal
Further reductions only during period of low prices
-0.25 ppl when your UL95 price falls below 56.5 ppl
-0.25 ppl when your UL95 price falls below 55.5 ppl
-0.25 ppl when your UL95 price falls below 54.5 ppl”
In the narrative accompanying the slide the speaker explained that “the contribution will only be made if prices fall to these levels....clearly if prices rise back up your contribution would be reduced”.
The speaker then turned to Esso’s advertising strategy with the use of the tiger’s eyes and a pole sign at all Esso service stations which
“will appear on the day you lower your prices to match your nearest hypermarket or other critical competitors.”
In addition there was to be a radio and TV campaign of which the message would be that Esso had invested in new technology to check prices every day to ensure that it could respond and deliver their “new pricing stance”.
The dealers were then invited to remain in their groups with their area manager. The area manager was to give each of them a pack containing details about Priceline and the competitive sites on which each of them would be expected to report. The speaker continued
“The packs also contain 2 copies of a Pricewatch agreement which you will need to sign, and give one copy to your RAM, if you want to participate in Pricewatch. There is a reason why we need you to sign an agreement. We have made a number of commitments both to trading standards and to the British Advertising Council about how we will ensure that we are delivering the Pricewatch promise to our customers. In order to fulfil those commitments we need you to commit to delivering the Pricewatch promise to your customers by signing this agreement.”
The pack given by the Area Manager to the dealer contained a detailed description of how Priceline worked. It explained the need to key in customer and PIN numbers. With regard to new recommended prices it set out the message to be heard on Priceline in the following terms:
“Attention! Your Esso recommended pump prices have been changed. Listen carefully to the new prices: Unleaded xx.x, Super Plus xx.x, Four Star xx.x, Diesel xx.x. Press 1 to confirm you have heard these prices and that they will be implemented without delay or Press 2 to hear them again.”
In his first witness statement dated 9th October 2001 Mr Walton described how he understood from the presentation that those who did not sign up to Pricewatch would have to pay higher prices for motor fuel similar to those charged to motorway service stations, namely about 3 pence per litre more than the prices hitherto charged to Niad. He said that at the later group meeting with the Area Manager, Mr Donagher, and about 15 others he had no individual discussion with Mr Donagher. In a second witness statement dated 6th November 2001 he corrected his first statement to the effect that at the meeting of the members of his group Mr Donagher said in answer to a question posed by Mr Walton or another dealer that those who did not sign up to Pricewatch would have to pay schedule prices, that is motorway prices or 3 pence per litre more than the prices charged to Niad. I do not doubt that, at some stage, this was Mr Walton’s understanding but I do not accept that he derived it from anything Mr Donagher said to him or in his presence at any part of the presentation. I do not consider that in either October or November 2001 Mr Walton had any clear recollection of the events of the 15th January 1996. His explanation for the change in his evidence between 9th October and 6th November 2001 was unconvincing. Moreover the statement he attributes to Mr Donagher does not feature anywhere in the guide to Regional or Area Managers as the suggested answer to such a question.
Mr Walton was given a pack for the Leyburn Service Station. Then or thereafter he agreed that Gills in Bedale would be a marker site and that the pricing strategy should be for the pump prices at Leyburn to be 1 penny per litre more than that charged by Gills. There is a dispute whether Mr Walton also agreed that Safeways in Ripon should also be a marker site. Mr Wilson thought that it was and Esso’s relevant computer file dated December 1997 confirms his belief. It also indicates that the pricing strategy with regard to Safeways was for the pump prices at Leyburn to be 2 pence per litre more than those charged by Safeways. This is denied by Mr Walton. This difference is not one I have to resolve. The complaint against Niad does not depend on Safeways being a marker site or on the prices charged by Safeways.
Before he left Warrington on 15th January 1996 Mr Walton signed the Pricewatch Agreement on behalf of Niad. It was in the following terms:
“I have attended the Esso Pricewatch presentation, and the terms of the promotion have been fully explained to me.
I understand that I am free to choose whether to join or remain in Esso Pricewatch (and that I can leave the promotion at any time if I so wish) and that whilst I do participate I will (every day, seven days a week):
1. Monitor motor fuels prices at nominated competitor sites and report those prices to Esso as Esso may require, using the Priceline system.
2. Telephone Esso (using the Priceline system) as Esso may require for my recommended resale prices, and implement and maintain those prices without delay.
3. Maintain point of sale and other advertising materials as required by Esso.
4. Issue and redeem Tiger Tokens in the usual manner during such periods as Esso nominates.
I understand that Esso reserves the right at any time to vary the wholesale schedule price at which motor fuels are sold to me in accordance with the terms of my supply agreement.
I understand that in the event of my failure to comply with any of these requirements Esso can enter my site and withdraw Esso Pricewatch from me and I will not be able to benefit from the terms of the promotion.”
Thereafter Niad purported to operate Pricewatch until 30th November 1998 when its solus agreement with Esso expired. The pole sign was put up and proclaimed the pump prices charged. The prices changed from time to time because of changes in the price of oil and changes in the rates of duty. These changes led Esso to change the dealer contribution and margin, explained in paragraph 20 above, both in amount and in the price level at which it operated. Such changes were notified to dealers by means of a standard letter sent to them all. The letter dated 2nd December 1996 stated:
“DEALER MARGIN CHANGE
In September, the sliding scale for Dealer margins was revised; at that time, you were informed that this scale would be subject to periodic review. Following the Chancellor's increase in Duty rates on Tuesday, 26th November and the subsequent increase in price levels, we are currently reviewing Dealer margin levels.
The new margin sliding scale for Dealer margins will be effective from start of business on Wednesday, 11th December 1996; your area manager will be in contact with you early next week to advise you of the new scale.”
Other such letters set out both the recommended pump price and dealer margin and invited the dealer to address any questions he might have to the Area Manager.
Mr Walton accepted that he received the periodical notifications of changes in dealer’s margins. He did not object to them or raise any questions about them with either Mr Donagher or Mr Wilson. Further he did not dispute that the amount of margin was readily deducible from the invoices rendered by Esso with each delivery of motor fuel, of which there were usually two a week.
Mr Walton also accepted that he operated Priceline on a regular, if not daily, basis. When notified of new recommended prices he, or his staff, pressed 1 to confirm that he had heard those prices and that they would be implemented without delay. But there were four occasions when it came to the notice of Mr Wilson that Niad’s pump prices were higher than the recommended prices for the Leyburn Service Station.
On 21st March 1997 Mr Wilson wrote to complain that on 20th March 1997 the price charged by Gills had been overstated by Niad and that on 8th February 1997 Niad was charging more than the Pricewatch price. Mr Walton was reminded that Esso reserved the right to withdraw Pricewatch if Niad failed to comply with the terms of the agreement. On 14th May 1997 Mr Wilson wrote again about overcharging. He reminded Mr Walton that in addition to withdrawing Pricewatch from Niad Esso could recover any price support paid by Esso and not passed on by Niad. On 18th February 1998 Mr Wilson wrote again to Mr Walton complaining about overpricing and indicated that if it happened again Esso would have no alternative but to withdraw Pricewatch and “backcharge” Niad for the difference between the pump price charged by Niad and the Pricewatch recommended price. A similar letter was written again on 12th August 1998 in relation to overcharging on 29th July 1998. On no occasion did Mr Walton deny the complaint. On each occasion immediately after the complaint the pump prices charged by Niad reverted to the recommended Pricewatch price.
In October 1998 Mr Wilson offered a new solus agreement to Mr Walton to take effect on the expiration of the five year agreement dated 10th June 1993 on 30th November 1998. No such agreement was concluded and the Leyburn Service Station ceased to be an Esso site.
Mr Walton contends that in the five years from 1993 to 1998 though the volume of sales at the Leyburn Service Station remained reasonably constant at an average of 13,000 litres per week the gross profits declined year by year from £75,184 in 1994 to £44,641 in 1998.
As I have indicated these proceedings were started by Esso on 12th September 2000. Schedule 7 to the Particulars of Claim gives details of the periods when it is alleged that Niad charged more than the Pricewatch recommended price and the amount of the overcharge. They were substantial in both length and amount. This schedule was put to Mr Walton in cross-examination. He accepted that the effect of charging more than the pump price recommended by Pricewatch was to obtain for Niad a greater margin than Esso would have intended had it known. He also accepted that his policy was to charge as much as he considered the market would stand so as to increase his profit whilst at the same time maintaining the volume of his sales. It is quite clear from the figures, and I so hold, that Mr Walton’s pricing strategy was not designed to maintain a dealer’s margin at any particular level.
In its particulars of claim (para 9) Esso contended that in the industry generally it is a condition of the price support offered by Esso that any reduction given to a retailer in the price of fuel supplied is to be passed on to its customer. In addition it relied (para 10.3) on the term of the Pricewatch Agreement that the retailer would implement and maintain the recommended price. In paragraph 14 it contended that it was an express condition of Pricewatch that Niad would pass on the full benefit of the price support discount to the customer failing which it was not entitled to the benefit of the reduction in the purchase price which it enjoyed.
Counsel for Niad submitted, and I agree, that such a condition is not expressed in the Pricewatch Agreement. Nor was such a condition supported by any evidence of industry practice or custom. Thus the claim of Esso must stand or fall with the terms of the contract (if any) concluded between Esso and Niad in relation to Pricewatch.
The contract on which Esso relies is that contained in the Pricewatch Agreement. Esso claims that the obligation to implement and maintain recommended retail prices was contractually binding. It submits that, given there was only one such price for any particular grade of fuel at any one time, the effect of that term was to give rise to the condition for which it contends. It does not dispute that there may have been other terms implied in or collateral to that contract dealing with the stock value compensation scheme, the dealer’s margin, the details of the sliding scale, which were to be the marker sites and the pricing strategy in respect of them. It contends that those matters do not affect the obligation or liability of Niad.
The case for Niad involves, as counsel for Esso correctly pointed out, “throwing into the melting pot almost every contractual argument known to Chitty”. But such a description does not entail the consequence that all those arguments are wrong. I will deal with them one by one.
First it was submitted that there was no sufficient consideration. Much was made of the fact that the Pricewatch Agreement dealt exclusively with the obligations of Niad. In so far as Esso had to do anything, what was required and when was not specified in the agreement and was left to the discretion of Esso. Reliance was placed on the principles explained in paragraph 3-024 Chitty on Contract 28th Ed. I do not accept this submission. Underlying the Pricewatch agreement were the obligations of Esso to promote the Pricewatch scheme to the public and to allow the dealers a margin without which the scheme could not be operated at all. This was real and more than sufficient consideration.
Second, it was submitted that the lack of reciprocal obligation on the part of Esso robbed the Pricewatch agreement of contractual force. I do not accept this submission either. A unilateral or “if” contract, such as an option or right of pre-emption, is well known to the law. For the reasons I have already given I do not accept that there was no sufficient consideration. It is for Niad to establish a lack of intention to create legal relations. Chitty 28th Ed. Para 2-146. It is unable so to do. The Pricewatch agreement itself demonstrates the requisite intention. In addition the presentations showed the financial commitment of Esso and the concluding remarks referred to in paragraph 22 above indicated how important it was for Esso to obtain the legal commitment of the dealers.
Third, it was suggested that the terms of the contract were insufficiently certain to be enforceable. The terms to which this contention related were the obligations of Esso with regard to the sliding scale by which the dealer’s margin was calculated, the details of the stock value compensation scheme and the terms of the promotion. It was suggested that they could not have been explained to the dealers in such detail as to justify the acknowledgement at the start of the Pricewatch agreement.
If Niad’s obligations are sufficiently certain and supported by sufficient consideration then I do not see how any uncertainty in Esso’s obligations can affect the validity of Niad’s. This action is not concerned with the enforcement of Esso’s obligations. If any of them is uncertain then it will not form part of the contract between Esso and Niad. Nor is it alleged that the obligations of Niad were inadequately explained at the presentation. In my judgment the scripts demonstrate that Niad’s obligations were spelled out clearly. It was for Mr Walton to decide whether he wished to sign the Pricewatch Agreement then and there or to seek further information from his area manager. Accordingly I reject the submission for Niad that the Pricewatch Agreement was insufficiently certain.
Fourth, it was submitted for Niad that the obligation imposed on Niad left it free to determine what pump price to charge its customers. It is submitted that Niad’s obligation in paragraph 2 of the Pricewatch Agreement was to implement and maintain recommended, not maximum, prices. Accordingly, it was argued, Niad was free to charge a higher pump price than that which Esso recommended through Priceline.
I do not accept that argument either. It is not suggested that Esso ever recommended a range of prices for any particular fuel. Thus there was no scope for the exercise by Niad of any power of choice. If there were doubt as to the obligation then the use of the word “recommended” might support an argument to that effect. In my judgment there was no such doubt for all the reasons I have already given. The obligation to implement and maintain the price notified by Priceline is clear from both the Pricewatch agreement and the terms of the Priceline message to which I have referred in paragraph 23.
Fifthly, it was suggested that the Pricewatch agreement was binding in honour only and the only remedy for any default was to withdraw Esso Pricewatch from that dealer as expressly permitted by the concluding paragraph. In this connection also reliance was placed on the uncertainty said to surround some of Esso’s obligations, the fact that they are not to be found in the Pricewatch Agreement itself and the extent to which Esso considered that it was entitled to alter the terms of the promotion, the sliding scale dealer’s margin and stock value compensation scheme.
In my judgment this submission is as unacceptable as all the earlier ones; indeed it is the same. Once it is concluded that Niad’s obligation was sufficiently certain, supported by sufficient consideration and entered into with the requisite intention to create legal relations then if it is broken, in the absence of either an exclusion or a defence, there will be some legal remedy. Thus my conclusion is that subject to the other issues to which I now turn Niad was contractually obliged to charge its customers the recommended pump price ascertainable from Priceline. As that price had been ascertained in accordance with Pricewatch Niad was, in that sense, contractually bound to pass on to its customers the benefits of Pricewatch. In other words, it was not entitled to charge a higher pump price in order to obtain a greater benefit for itself.
The first suggested defence is one of set-off. Niad contends that it was entitled to a dealer’s margin of 2.2 pence per litre under the original oral agreement with Mr Donagher to which I referred in paragraph 10. As indicated in that paragraph I assume, but without deciding, that Niad was so entitled. But any such entitlement was necessarily superseded by the Pricewatch Agreement. It is quite plain that the part of the presentation to which I referred in paragraph 20 dealt with a new arrangement for the dealer’s margin. It superseded the old arrangement. It was not superimposed upon it. Even if it be assumed that Esso did not have the power subsequently to alter the terms as to the dealer’s margin explained in the presentation those terms necessarily overrode the earlier entitlement to a dealer’s margin of 2.2 pence per litre.
Niad also contended that the variation of the original agreement effected by the Pricewatch Agreement went no further than reducing the original entitlement to a dealer’s margin of 2.2 pence per litre by the 0.25 pence per litre reduction taking effect on the withdrawal of the tiger tokens. I understood counsel to contend that because Esso did not have the right to alter the sliding scale for any further reduction and because the original scale never came into effect an entitlement to a dealer’s margin of 1.95 pence per litre remained.
Esso contended that it did have the power to alter both the amount of the dealer’s margin and the sliding scale. It claimed that it was necessarily implicit in the Pricewatch Agreement and was in any event subsequently agreed by Niad.
It is true that Mr Walton accepted in his cross-examination that a dealer would readily accept that Esso could alter the sliding scale to accommodate an increase in the price of oil or in the rate of duty. To this extent there was some support for the implication of a term such as that for which Esso contends. But, it might be thought, the terms of the presentation were too clear to admit of such an implied qualification. No such doubt attends the alternative submission of Esso. As a decision on the implication of such a term is unnecessary and as it would be likely to affect all Esso dealers not only Niad, I have concluded that I should not decide that issue.
The alternative contention of Esso is that Niad agreed to the subsequent variation of the dealer’s margin and sliding scale. Each variation was notified to Niad in advance. On no occasion did Niad object or question either the variation or Esso’s right to make it. Thereafter, at least once a week, Niad took delivery of further motor fuels accompanied by an invoice from which the amount of the dealer’s margin was readily apparent. In my judgment the conduct of Niad was such as to constitute acceptance of the variation proposed by Esso in its notification.
Niad contended that even so there was no sufficient consideration to support an agreement to vary. I do not accept this submission. On each occasion Esso promised to carry out a periodic or quarterly review of the margin and sliding scale. Depending how prices moved the system was capable of conferring a benefit on Niad and from time to time no doubt did so. This is more than enough to constitute consideration for an agreement to vary the margin and sliding scale. Chitty on Contract 28th Ed. Para. 3-074(2).
Niad also contended that an implied term permitting a variation in the dealer’s margin or in the sliding scale would fall within the scope of the Unfair Terms in Consumer Contracts Regulations 1994 SI 1994/3159 and would be invalid unless reasonable. In the circumstances that I have not decided that there is such an implied term this issue does not arise.
Niad also relied on alleged breaches by Esso of the Pricewatch agreement as a defence to its own. The suggested breaches were alterations in the terms of the promotion and unauthorised reductions in the dealer’s margin and changes to the sliding scale. I have already held that there was no breach with regard to either the dealer’s margin or alterations to the sliding scale.
The suggested breach to the terms of the promotion arose from changes in the language in which it was presented to the public. Niad contended that originally the scheme involved pricing “head to head”, that is always matching or undercutting the specified competitor. This was modified to an assurance that Esso’s prices would be “amongst the lowest”. That was changed to “usually amongst the lowest”. I do not accept that the precise terms of the promotion were ever part of the Pricewatch Agreement. Even if they were they could not be applied in relation to Niad because neither Gills nor Safeways fell within the definition of primary marker sites as explained at the presentation (see paragraph 17 above). Even if they were, so long as the Pricewatch Agreement continued, the unaccepted repudiations by Esso could not excuse breaches by Niad. Fercometal v Mediterranean Shipping [1989] AC 788, 799 and 805. For all these reasons, even if there was a breach of the Pricewatch agreement by Esso it could not constitute a defence to Niad.
In its defence Niad raised a number of other defences which were not dealt with by counsel in his oral argument. In his closing submissions counsel for Niad accepted that he had strayed quite a long way from his written argument. He explained that he had come into the case at the last moment and that his thoughts had crystallised as the case had gone on. I have accordingly not dealt in this judgment with a number of other issues raised only either in the defence or in counsel’s written argument. I have regarded them as, effectively, abandoned. I would add that having read the written argument and the arguments advanced in support of those defences I see no merit in any of them.
For all the reasons previously given I am satisfied that Niad is liable to Esso for breach of contract. It is not disputed that Esso is entitled to the usual remedy of damages for breach of contract. As I have already explained it has changed the basis on which it claims such damages from the reliance to the expectation loss basis. If this claim is pursued Esso will have to establish that it has lost sales of motor fuels by reason of the failure of Niad to charge at or below the Pricewatch recommended price. This may not be easy. In any event the amount is unlikely to be commensurate with the amount of additional price support derived by Niad from Pricewatch which it should have passed on to its customers.
For this reason Esso seeks an account of the profits derived by Niad from its breaches of contract. It relies on the recent decision of the House of Lords in A-G v Blake [2001] 1 AC 268. But this too is unlikely to yield by way of recompense the amount of additional price support obtained by Niad from Pricewatch which it did not pass on. No doubt it is for this reason that Esso also seeks a restitutionary remedy whereby it recovers the amount by which the charges made at the Leyburn Service Station exceeded the recommended prices on the basis of unjust enrichment. It is accepted that these remedies are alternative not cumulative; but Esso contends that it is entitled to the judgment of the court on which of them is available before electing which to pursue. For completeness I should add that the further claim for damages for misrepresentation was abandoned.
Thus there are two additional issues: (1) Is Esso entitled to an account of profits as a remedy for the breaches of contract by Niad and (2) Is Esso entitled to a restitutionary remedy requiring Niad to pay to Esso the amount by which the actual prices charged to customers exceeded the recommended prices.
In A-G v Blake [2001] 1 AC 268 the Attorney-General sought to obtain an account of the profits made by Blake in publishing official information obtained in consequence of his employment by the Crown, the remedy of an injunction being unavailable in the unusual circumstances of that case. The House of Lords concluded that such a remedy was available for a breach of contract in exceptional cases as the just response to the breach of contract. The circumstances in which such a remedy is available was described by Lord Nicholls of Birkenhead, with whom Lord Goff of Chieveley, Lord Browne-Wilkinson and Lord Steyn agreed in the following terms (page 285):
“An account of profits will be appropriate only in exceptional circumstances. Normally the remedies of damages, specific performance and injunction, coupled with the characterisation of some contractual obligations as fiduciary, will provide an adequate response to a breach of contract. It will be only in exceptional cases, where those remedies are inadequate, that any question of accounting for profits will arise. No fixed rules can be prescribed. The court will have regard to all the circumstances, including the subject matter of the contract, the purpose of the contractual provision which has been breached, the circumstances in which the breach occurred, the consequences of the breach and the circumstances in which relief is being sought. A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant's profit-making activity and, hence, in depriving him of his profit.”
Esso claims that it ought to be afforded such a remedy in this case. It points out that the obligation to implement and maintain the recommended prices was fundamental to the whole Pricewatch scheme as explained at the presentation as described in paragraph 22 above. It can fairly be said that Niad did the very thing it contracted not to do and in a manner designed to obscure the policy Niad was in fact following, as explained in paragraph 33 above.
For Niad it was contended that the operation of Pricewatch reduced its profits, as shown by the figures referred to in paragraph 32 above. It contended that it would be wrong to grant the remedy of an account of profits so as thereby to enforce loss-making terms which were both unfair and unreasonable.
I do not accept the points relied on by Niad. Even though the profitability of the sale of motor fuels from the Leyburn Service station declined by 40% during the time Niad was in Pricewatch they still yielded a profit. There was nothing unfair or unreasonable in expecting Niad to observe the obligations of Pricewatch if it was to obtain the benefits.
In my judgment the remedy of an account of profits should be available for breaches of contract such as these. First, damages is an inadequate remedy. It is almost impossible to attribute lost sales to a breach by one out of several hundred dealers who operated Pricewatch. Second, the obligation to implement and maintain the recommended pump prices was fundamental to Pricewatch. Failure to observe it gives the lie to the advertising campaign by which it was publicised and therefore undermines the effectiveness of Pricewatch in achieving the benefits intended for both Esso and all its dealers within Pricewatch. Third, complaint was made of Niad on four occasions. On all of them Niad appeared to comply without demur. It now appears that the breaches of its obligation were much more extensive than Esso at first thought. Fourth, Esso undoubtedly has a legitimate interest in preventing Niad from profiting from its breach of obligation.
I turn then to the restitutionary remedy. It is undoubted that Niad obtained a benefit, in the form of the price support, to which it was only entitled if it complied with its obligation to implement and maintain the recommended pump prices to be supported. In these circumstances it can hardly be denied that Niad was enriched to the extent that it charged pump prices in excess of the recommended prices. The enrichment was unjust because it was obtained in breach of contract. It was obtained at the expense of Esso because Esso was providing price support for a lower price than that charged by Niad. I can see no reason why this remedy should be unavailable to Esso if it wishes to pursue it. Indeed it appears to me to be the most appropriate remedy in that it matches most closely the reality of the case, namely that Niad took an extra benefit to which it was not entitled. It is just that it should be made to restore it to its effective source.
For all these reasons in my judgment Niad is liable to Esso
a) for damages, or
b) an account of profits for breach of contract, or
c) to restore the amount by which the pump prices it charged its customers exceeded the recommended prices between 14th February 1996 and 30th November 1998.
Esso will have to elect which of these alternative remedies to pursue. I heard no argument and do not determine when that election must be made.
In conclusion I would make some observations on the form of the preliminary issue ordered by the Master. Having quite properly ordered a trial on liability he then set out eight specific issues to be included in that trial. It was not suggested by either party that I was confined to those issues or obliged to answer them. In my view such concessions were rightly made. Some of the issues (issue 2) went beyond what was relevant. Others (issues 4 and 8) assumed that no amendments or concessions would be made in the course of the trial on liability. I consider that it is misleading to direct issues to be tried in this form. In addition it is unnecessary for either the issue will have to be determined as part of the ascertainment of liability or it will be irrelevant.
