‘Cant pay, wont pay’ said numerous Esso station operators across the country when Esso asked them to stump up the cost of a long running loyalty scheme. The contracts seemed to favour Esso, but could the service stations get off the hook?
Topic: Promotion Marketing
Who: Esso Petroleum Co Limited and Addison and Others
Where: The Commercial Court, London
When: July 2003
In this litigation, the court adjudicated on petrol supplier Esso's claim against numerous companies and individuals who at various times had operated petrol stations under an Esso licence. The proceedings dealt with three major issues which were common to most of the defendants. One of the issues related to a 'Tiger Token' promotion scheme operated, incredibly, from 1986 to 1996.
Under the promotion, individual petrol stations were expected by Esso to bear the whole of the cost of administering the scheme, plus part of the cost of providing the promotional gifts. The promotion ran for so long that by the time it came to an end, a number of licensees owed significant sums to Esso. Many of these licensees disputed liability. They did this on a number of grounds, some of which were fairly ingenious, all of which were ultimately unsuccessful.
One argument was that because some of the relevant licence agreements stated that the licensees 'should' as opposed to 'shall' join in promotional schemes, this difference in wording was crucial. Whilst it was admitted that use of the world 'shall' would have imposed a clear obligation on the licensees in this regard, the word 'should' was argued as merely 'encouraging' the licensees to join in promotional schemes, not actually obliging them to do so. In the Judge's view, however, there was no distinction to be drawn. This was an obligation, not an option.
The licensees tried a different tack, again on the question of whether the costs they were being asked to pay were in reality costs for Esso to meet rather than for the petrol station operators. They referred to the 1964 Trading Stamps Act, an obscure piece of legislation which is due for imminent repeal. Esso clearly accepted that the 1964 Act applied to this promotion, for instance by ensuring that a cash redemption value of 0.001p appeared on each token. Section 1(1) of the 64 Act provides that 'no person other than a company or an industrial provident society shall carry on business as the promoter of a trading stamp scheme'. The 1964 Act also imposed on promoters of relevant schemes an obligation to provide warranties in respect of promotional gifts as to satisfactory quality etc which were similar to those which would normally apply in a retail sale situation.
The petrol station operators argued that all this pointed to Esso being the promoter and the owner of the promotional gifts and the petrol station operators merely acting as Esso's agents for the purposes of carrying out the promotion. In these circumstances, they said this was not a promotional scheme which the petrol station operators should pay the costs of, despite the wording of their licences.
Mr Justice Moore-Bick accepted that the 1964 Act applied, but was not persuaded that it made any difference whatsoever to the question of who, as between Esso and the petrol station operators, should be ultimately responsible for the costs of operating the promotion. There appears to be evidence that some licensees at least had been given verbal assurances by Esso that the promotion would not result in the petrol station operator having to meet any of the costs. These allegations would have to be dealt with in separate litigation. For the purposes of this group action, however, the judge was quite convinced the licensees were contractually obliged to join in the promotion of the kind in question and to operate it at their own expense.
Why this matters:
The petrol station operators' arguments were ingenious, but at the end of the day failed because the terms of the relevant agreements with the petrol manufacturer were clear. It might seem inequitable for a supplier in the position of Esso to have an unrestricted right to impose any type of promotion on its licensees, for any period of time, and to require the licensees to pay the costs of that promotion. Nevertheless this was how the licences were framed and the licensees were stuck with the wording. No doubt petrol station operators and other franchisees faced with similar wording in franchise contracts will not immediately agree to such provisions from now on!