CASE STUDY

ESSO PETROLEUM CO. LTD v. HARPER’S GARAG

[ 1967] 1 ALL ER 699

DOCTRINE OF RESTRAINT OF TRADE

Judges: 
Lord Reid 
Lord Morris of Borth-y-Gest 
Lord Hodson 
Lord Pearce 
Lord Wilberforce

Subject References: 
MORTGAGE 
Equity of redemption 
Restraint of trade 
Mortgage tied with sales agreement with oil company for sale of petrol 
Mortgage irredeemable for 21 years with sales tie 
Whether doctrine of restraint of trade applicable to covenants in mortgage 
Whether mortgage unreasonable and invalid 
Whether mortgage oppressive and redeemable 
Sale of goods 
Restriction on brand of goods 
Tied garages 
Sales agreements with oil companies for sale of petrol 
Agreements for four years and five months and 21 years respectively 
Mortgage of garage irredeemable for 21 years with sales tie 
Whether agreements in unlawful restraint of trade 
whether Reasonable 
Whether categories closed 
Restrictions falling within doctrine 
Whether applicable to covenants in mortgage

The appellant has a large company whose most important product is Esso petrol.The respondent
owned and operated two garages MUSTOW GREEN GARAGE AND CORNER GARAGE .The
respondents who owned M.GARAGE and C.GARAGE entered into an solus agreement with
appellant. The solus agreement dated at 27 june ,1963.It was for a term of four years and five
months from July 1,1963.It contained clauses for

(a)purchase of apellants’ motor fuel at wholesale schedule prices for all requirements of the
garages .
(b)a price maintenance clause for the sale at the appellants’ retail prices ,which had since become
unforceable by the reason of the Retail Price Act ,1964.

(c)an obligation ,if the garage was sold to get the buyer to enter into a simiar solus agreement (“the
continuity convenant”)

(d)an obligation to keep the garage open at all reasonable hours (“the compulsory trading
covenant”)

The appellant had a mortgage dated Oct. 6 ,1962 on the C.garage to secure a principal sum of
7,000 england currency lent to the respondent and interest as well as similar solus agreement ,the
duration of which was for 21 years from july 1,1962 which was also the period during which
mortgage money was made repayable by installments. the mortgage charged C. garage by way of
legal mortgage with repayment and payment of interest ,and contained covenant for the
observation and performance of stipulation included a tying covenant and a compulsory trading
covenants on the lines previously indicated .The mortgage also contained provision that it should
not be redeemed otherwise than in accordance with the covenant for repayment viz ., by
instalments over twenty yone years ,or indeed five years was reasonable.  The defendants started
to sell cut price petrol of other brands. Esso sought an injunction to prevent them doing this. The
defence was based on ‘restraint of trade’.

ISSUES:-
There was two main arises in this case:-

(a)whether or not the doctrine of restraint of trade applies to these solus agreements and to
mortgage which take place between owners of garages and producer of esso petroleum company?

(b)whether this agreement is unreasonable restraint of trade ?

Appeal :-
This was an appeal by the appellants ,Esso petroleum Co. Ltd from the judgement of the court of
Appeal

These two action were begun by writ issued on Feb 18 and Aug 28,1964 and were consolidated by
order dated March 17,1965.From about the end of the years 1963 and from about August ,
1964,the respondent sold at mustow garage and at corner garage respectively motor fuel which
was not supplied by the appellants lords.
In judgement given by the Lord Reid he said that the main provision of M.garage agreement are
that while remain in force the respondent agreed to buy full requirement of motor fuel to resale at
tha garage by appellants.

And to keep garage open for all reasonable hours and in return appellants agreed to sell to the
respondents at their wholesale price schedule price at the time of delivery and to allow a rebate
from that price of one penny farthering per gallon payable quarterly.

The two other provision was that which the judge taken into consideration is if the respondent
wished to dispose of the garage they were not to do so except to a person who agreed to be
substituted for them aor all purpose of this agreemantn .if the agreement is otherwise
objectionable ,because he do not think that his provision can validate it,Because it was only by such
means appellants could ensure that their petrol would continue to be sold at this garage for the
full period of this agreement .the other provision was regaring the price maintenance which
appellants has inserted with large tying agreements with garages .shortly before the present
agreement was raised the appellants intimated that they would not enforce this clause against any
of their tied customers. But the respondent was in favour of this price maintenance and they
defence that this change of policy by appellants would entitled them to rescing whole agreement
of this tie.this defences was rejected by MOCATTA .J.

With regard to restrain of trade most general statement given By LORD PARKER IN A.G of
commonwealth of Australia v. Adelaide Steamship ,he said that monololies and contracts in
restraint of trade ,if enforced involve a degrogation from the common law right in virtue of which
any member of the community may exercise any trade or businesss he pleases and in such manner
as he thinks best in his own interests.means all contracts in restraint of trade involve such a
degroation but not all contracts involving such a degrogation are contracts in restraint of trade.

If a person enter into a contract or may agree to give his exclusive rights another then during that
period he is not entitled to engage in any other business activities ,such contracts are in restrain of
trade bur there are some very unusual condition such a in Young v. Timmins,where the servants
had not agreed to work for anyone else but might have been given no work and received no
remuneration for considerable periods and thus hacve deprived of livelihood and thus have been
deprived of a livelihood,according to lord he found that though the ground of judgemant may not
be correct but I think that the case was rightly decided.  By lkater statement given byLord parkerit
made clear to lord reid that all contracts which by obliging a man to act in one way prevented him
from doing other things have been held to be a perfect obligations or against public policy.

He further said that unless a contract is vitiated by duress,fraud or mistake ,its term will be
enforced though reasonable or even harsh or unconscionable but a term in restrain of trade will
not be enforced unless it is reasonable ,Moreover,in the ordinary case the coyurt will not make a
remake contract ,unless in their right to sell there petrol not supplied by the appellants,

In his view the agreement was within the scope of doctrine of restraint of trade ,as it had been
developed by English law,respondent has negatively agree for not to sale other’ petrolbut also
positively confirmed the clause (c)of agreement .he argued that this was only promoting the
respondents’ trade but regulating person’s existing trade may be a greater restraint than
prohibiting him from engaging in a new trade.he was not able to draw a line between contracts
which are and which are not in class of restraint of trade because a contracts to take one’s supply
from one source may be hamphering than a contracts to sell one’s whole output to one buyer.

Now in second agreement the apeallants argue that the fact there is a mortgage excludes any
application of the doctrine of restraint of trade and he agreed with this argument .he said that he
was prepared to assume that if the respondents had no offered to repay the loan so far as it is still
outstanding ,the appellants would have been entitled to retain the tie.as they have tendered the
repayment however he don not think that the existence of the loan and the mortgage puts the
appellant in any stronger position to maintain the tie than they would have been in if the original
agreen\mants had permitted repayment at an earlier date.the appellants must shew that ,in the
circumstances when the agreements was made ,a tie for 21 years was justifiable.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd,

he was completely agreedWhich stated that restraint of trade and interference with the
individuals liberty of action may be justified if the restriction is reasonable ,that is in reference to
the interests of the parties concerned and in reference to interests of public so guarded as to
afford adequate protection to the party in whose favour its is imposed,while at the same time it
is no way injurious to public.and according to him it was necessary to consider these thing.He
also held that the court will not enforce a restraint which goes further than afforeding adequate
protection to the legitimate interests of the perty in whose favour it is granted because too
much wide wide a restraint is against public interests.
One must also bera in mind that that an agreement in restraint of trade is not generally lawful if the parties
chose to abide by it ;it is only unforceable if a party choose not to abide by it.

The advantage of the garage owner is that he gets arebate on the whole sale price of petrol and
also gte other beneficial financial assistance and the main advantage for the garage owner is that
distribution is made easier and more economical and that is as asure of a steady outlets for its
petrol over a period.as regard the distribution the esso company was tied with seven thousand
filling station and main reason why the producing companies wants ties for five years and more
instead of ties for 2-3years only seems to be that thay can organise their business better if on the
average only one-fifth or less of their ties come to an end in any one years .the appellants make a
point of fact that they have invested some 200 England currency in refinires and other plants and
that thay colud not have done that unless they could forsee a steady and assured level of sales of
their petrol. Most of the ties appear to have been m,ade for between five to twenty one years but
we have no evidence as to the precise additional advantage which they derive from a five years as
compared with a two year tie or from a twenty year tie as compared with five years tie.

The court of appeal held that these ties for unreasonably long periods.they thought that if for any
reason the respondents ceased to sell appellants’ petrol,the appellants could have find other
suitable outlets in the neighbouthood within two or thre years but looking to the fact that there
were 90 percent of existing filling stations are tied and that may be a great difficulty in opening
filling station ,it might take a long time to find an alternbative.

He do not find it suitable to take appelants’ interests to narrowly .they are not so much concerned
with any particular outlet as with maintaining a stable system of distribution throughout the
country so as to enable their business to be run efficiently and economically .in his view it was
sufficient material to justify a decision that ties of less than five years were insufficient in the
circumstances of the trade when these agreements were made ,to afford adequate protection to
the appelant’s legitimate interests and according to these facts he didn’t found in details of
M.Garage agreement which would found to be unreasonable and therefore allow the appeal as
regards the Mustow Green agreement.

For the C.Garage agreement,taking first the legoitimate interet of the appleants ,a new argument
was submitted that apart from question of security for their loan ,it would be unfair for the
appellants if the respondents having used the appellants money to build up their business were
entitled to be free to seeks better terms from the competing producer.therefore is no
material,however on which I can assess the strength of this argument ,and I do not find myself in a
position to determine whether it has any validity .A ties dor 21 years years stretches far beyond
any period for which developments are reasonably forseeable but here public interests come more
strongly.moreover apart from a case where he gets a loan,a garage owner appear to get no greater
advantage from a twenty one year tie than he gets from a five years tie.so there should be any
evidence which would prove some clearly advantage to producing company something to show
that shorter period would not be adequate before so long period could be justified .but in this case
ther ws no evidence to prove anything of the kind .therfore he dismissed the appeal as regards the
corner harage agreen\ments.

Lord Morris of Borth-Y-Gest):

[
Respond

respondent company harper’s assert, while the appellants («Esso») deny, that what is
generally called the "doctrine" of restraint of trade itb must be considered in reference to the
solus agreements: if so, then the agreements must pass a test of reasonableness before they
can qualify to be enforceable.it emerged as an issue on the eve or at the commencement of
the trial.

. Monopolies, were always in favour with the law of restraint of trade. arrangements are
condemned which have as their mere purpose the elimination of competition. Restraints
which would result in preventing a man from pursuing his trade and earning his living may be
injurious to the man himself and to a family dependent on his support and may be detrimental
to the public interest... In general, the law recognises that there is freedom to enter into any
contract that can lawfully be made enforce. law does not allow a man to derogate from his
grant. If someone has sold the goodwill of his business, some restraint to enable the purchaser
to have that which he has bought may be recognised as reasonable. Some restraints to ensure
the protection of confidential information may be similarly regarded. Sir George Jessel M.R. in
Printing and Numerical Registering Co. «v». Sampson, said that It must not be forgotten that
you are not to extend arbitrarily those rules which say that a given contract is void as being
against public policy, because if there is one thing which more than another public policy
requires it is that men of full age and competent understanding shall have the utmost liberty
of contracting, and that their contracts when entered into freely and voluntarily shall be held
sacred and shall be enforced by courts of justice. Therefore, you have this paramount public
policy to consider - that you are not lightly to interfere with this freedom of contract."

This statement was also confirmend by Scrutton L.J. in his judgment in English Hop Growers
Ltd. «v». Dering,F26 when he said:

"I have always myself regarded it as in the public interest that parties who, being in an equal
position of bargaining, make contracts, should be compelled to perform them, and not to
escape from their liabilities by saying that they had agreed to something which was
unreasonable."

The inquiry is raised as to what are the circumstances in which the doctrine applies. In
particular in the present case the question arises whether it can be said that the solus
agreements by their terms involve a restraint of trade. If they do, then it is contended
by «Esso» that the doctrine or principle of restraint of trade never has application to a
restraint which is imposed upon the trading use to be made of a particular piece of land.

Judge take into account the judgement of Lord Macnaghten in his sppech in Nordenfelt v.
Maxim Norden Guns and Ammunitions Co ltd that All interference with individual liberty of
action in trading, and all restraints of trade of themselves, are contrary to public policy, and
therefore void. That is the general rule. But there are exceptions: restraints of trade and
interference with individual liberty of action may be justified by the special circumstances of a
particular case. It is a sufficient justification, and indeed it is the only justification, if the
restriction is reasonable - reasonable, that is, in reference to the interests of the parties
concerned and reasonable in reference to the interests of the public, so framed and so
guarded as to afford adequate protection to the party in whose favour it is imposed, while at
the same time it is in no way injurious to the public."

When attempt is made to define what is meant by a contract in restraint of trade, words are
used which are of far-reaching application.

So Diplock L.J. in the same case said that A contract in restraint of trade is one in which a
party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in
the future to carry on trade with other persons not parties to the contract in such manner as
he chooses

I approach the present case by considering first whether the agreements made by  harper’s

should, in a rea sonable sense, be regarded as in restraint of trade and, if they are to be so
considered, secondly, the submission which was made that, since the restriction can be said to
be a restriction of the trading use to be made of a particular piece of land, the doctrine of
restraint of trade has no application.

. In my view, harper’s agreed to operate the esso  in a particular way and, above all,
theyagreed to take all their requirements of motor fuels from esso . Implied in this was an
undertaking not to sell any other motor fuels than those of esso . The very basis of the
agreement was restrictive. It was designed to ensure that Harper’s would not sell any of the
motor fuels that competed with Esso . It restricted the manner in which Harper’s  would carry
on their business. The supply agreement, dated July 5, 1962, in reference to the Corner Garage
had in general the same features.

If the agreements are regarded, as I think that they must be, as being prima facie in restraint
of trade, then the question arises whether there is validity in the contention that the
restriction was merely of the trading use to be made of a particular piece of land and that, as a
consequence, there was exclusion of the applicability of the doctrine of restraint of trade. It
was powerfully argued that it has long been accepted that a covenant in a lease of premises
which prohibits the carrying-on of any trade or business upon the premises is not subject to
the tests of being reasonable as between parties and not injurious to the public interest: and it
was argued that the reason for this can be stated to be that the doctrine of restraint of trade
applies to agreements which in substance restrict the trade that a person may engage in, yet it
does not apply to agreements which in substance merely restrict the use to be made of a
particular piece of land. It was said that «Harper's» covenants did not limit their activities
anywhere else than on particular pieces of land, that is, at their two garages.

There is a considerable difference between the covenants in the present case and covenants
of the kind which might be entered into by a purchaser or by a lessee. If one who seeks to take
a lease of land knows that the only lease which is available to him is a lease with a restriction,
then he must either take what is offered (on the appropriate financial terms) or he must seek a
lease elsewhere. No feature of public policy requires that if he freely contracted he should be
excused from honouring his contract. In no rational sense could it be said that if he took a
lease with a restriction as to trading he was entering into a contract that interfered with the
free exercise of his trade or his business or with his "individual liberty of action in trading." His
freedom to pursue his trade or earn his living is not impaired merely because there is some
land belonging to someone else upon which he cannot enter for the purposes of this trade or
business. In such a situation (that is, that of voluntarily taking a lease of land with a restrictive
covenant) it would not seem sensible to regard the doctrine of restraint of trade as having
application. There would be nothing which could be described as interference with individual
liberty of action in trading. There is a clear difference between the case where someone
fetters his future by parting with a freedom which he possesses and the case where someone
seeks to claim a greater freedom than that which he possesses or has arranged to acquire. So,
also, if someone seeks to buy a part of the land of a vendor and can only buy on the terms that
he will covenant with the vendor not to put the land to some particular use, there would seem
in principle to be no reason why the contract should not be honoured.

The agreements made by Harper’s  were quite different. Harper’s  had their garages. Esso  had
no interest in them or in the land on which they were situated. By the
agreements, harper’s agreed for periods of years to limit and restrict their trading activity.
They agreed (in general) not to sell any motor fuels other than those of Esso . Prima facie the
agreements were in restraint of trade. They were naked covenants or covenants in gross. As
covenants they seem to me to have more of a personal character than of a property character.
They were concerned with the way in which Harper’s  would carry on their garages and their
businessesIt is agreed that no case has been cited which lays down or upholds the wide
proposition that the doctrine of restraint of trade can have no application to a covenant which
is merely restrictive of the trading use to be made of a particular piece of land Indeed, as most
activities and enterprises take place in some way or other on or in connection with land, it
would be possible, if the proposition were upheld, to frame a great many covenants so as to
avoid their being open to the tests to which covenants in restraint of trade must submit. But,
apart from this consideration, there are cases in the books which point to the novelty of the
proposition. Thus, in English Hop Growers Ltd. «v». DeringF33 the defendant undertook to
deliver to the plaintiffs all the hops grown or produced by him in a particular year on land of a
certain acreage. He contended that the agreement was not enforceable because it was in
restraint of trade. The court did not say that the contention could not be advanced. They did
not say that as the defendant's undertaking was restrictive of the trading use that he was
making of his land the contention was not open to him. The court considered the contention
but held that the undertaking of the defendant was not unreasonable: accordingly it was
enforced.

For the reasons which I have set out, and subject to what I have said above, I am unable to
accept the contention in its wide form that in no circumstances can the doctrine of restraint of
trade apply to contracts or covenants regulating the trading use to be made of a particular plot
of land. The agreements made in reference to the two garages of «Harper's» were, in my
view, agreements in restraint of trade. The question, therefore, arises whether the
agreements can pass the tests of reasonableness. «Esso» allege that the agreements were
reasonable as between the parties. The onus is on them to show that this is so. They must
show that the restraint affords them no more than adequate protection for those interests
which they have a right to have protected.

It becomes necessary to consider separately the agreements in reference to the two

respective garages. In doing so, however, the nature of Esso's legitimate interests qualifying
for protection must be remembered. There was evidence that they had expended a large sum
of money in erecting refineries. They spent money in the operation of their dealer co-
operation plan. Following their initiative in introducing solus agreements, other companies
followed suit, with the result that, at the time of the hearing before the learned judge, out of
36,000 "outlets" in the United Kingdom at which a motorist could buy motor fuels, nearly
35,000 were subject to solus agreements. Of the 35,000 over 6,600 were with «Esso». The
circumstances that there are solus agreements in respect of so high a proportion of garages
undoubtedly brings it about that delivery charges are reduced. Overall planning can effect
further economies. All these and kindred considerations demonstrate that it is essential
for «Esso» to be able to plan ahead. In particular, in order to ensure that they will be able to
sell the motor fuel that they will produce for distribution, it will be reasonable for them to
have secure outlets. And, as solus agreements became so much a feature of the trade and
contained some features which were advantageous to «garage» proprietors, it was reasonable
for «Harper's» to make arrangements in conformity with current practice. This all indicates, in
my view, that, from the point of view of time alone, solus agreements which last for a few
years are capable of being adjudged to be reasonable.

In the case of the Mustow Green «Garage» the duration of the solus agreement was four
years and five months. Though that period was arranged because it was the unexpired period
under a former agreement which had been made in reference to that «garage», I think that
the question to be decided is whether the appellants have established that the tie as arranged
for that period was reasonable as between the parties. When the agreement was made (in
June, 1963), price maintenance was in existence, and «Harper's» agreed to abide by the retail
schedule prices as fixed by «Esso», if they were so fixed. Though at a later date price
maintenance no longer continued, it is pertinent to note that under the
agreement«Harper's» were obliged to buy from «Esso» their total requirements of motor
fuels for resale and to buy at Esso's wholesale schedule price. «Harper's» had a rebate from
the price as fixed. «Esso» could, therefore, themselves fix their schedule price from time to
time. Also, there was nothing to prevent them from selling directly to some others (farmers
and traders) at a price less than that which they fixed as their wholesale schedule price. In
addition to being obligated only to buy from «Esso», «Harper's» agreed to keep the filling
station open (at all reasonable hours) and agreed only to sell or transfer to someone who
would undertake the obligations for any remaining period. Though in regard to the price
that«Harper's» would have to pay «Esso» for their motor fuel, «Harper's» were in one sense
at the mercy of «Esso», it is reasonable to assume that «Esso» would wish to arrange matters
in such manner as was best calculated to bring about a high volume of trade in «Esso» motor
fuels. They would naturally have regard to the prices fixed by others and also to the
circumstance that there existed a certain number of garages not bound by any ties. From a
business point of view «Harper's» were not being unwise in entering into a solus agreement of
only a few years' duration: but, whether they were or not, they freely entered into it and it
was their decision to repose a measure of confidence in «Esso». I consider, therefore, that the
real problem in the case of the Mustow Green contract is to decide whether for a contract of
its nature a duration of four years and five months makes the contract unreasonable as
between the parties. Though the evidence adduced by «Esso» might have been more ample,
and probably would have been had the litigation been initiated on the lines along which it has
later developed, I consider that «Esso» did discharge the onus of showing that the contract
was reasonable as between the parties.

In the case of the Corner «Garage» the arrangements were very different. There was a solus
agreement. There was also a loan agreement and a mortgage. The solus agreement (dated July
5, 1962) was for a period of 21 years. It was in similar terms to the solus agreement relating to
the Mustow Green «Garage». «Esso» lent a sum of £7,000 to«Harper's» for the purpose of
helping «Harper's» to buy the Corner «Garage» and to improve it and, by the loan agreement
(dated July 12, 1962) «Harper's» agreed to purchase all their requirements of motor fuels
from «Esso» until the loan and interest had been repaid. Furthermore, «Harper's» were to
grant a mortgage to «Esso» as security for the loan. By the mortgage (dated October 6,
1962), «Harper's» were to pay off the loan (with interest) over a period of 21
years. «Harper's» could only redeem in accordance with the agreement as to repayment -
with the result that they could not redeem for 21 years. In the mortgage deed there was also a
covenant by «Harper's» to occupy the «garage» and to conduct it and keep it open during
normal business hours as retailers of motor fuels and there was a covenant to purchase motor
 fuels exclusively from «Esso». There were various other provisions of importance.

By considering the facts and the documents that the solus agreement, the loan agreement
and the mortgage can be linked together as incidents of one transaction and that the intention
was that in providing that the mortgage should be irredeemable for the period of the tie it
should become a support for the solus agreement. It was the contention of «Esso» that the
doctrine of restraint of trade does not apply to covenants contained in mortgages of land but
he want that Court of Appeal, that the doctrine of restraint of trade does apply to mortgages.
In regard to the period of 21 years he consider that «Esso» have failed to show that a period
of that length was reasonable in the interests of the parties. There was an unreasonable
restraint of trade and the inclusion of it in the mortgage which was made irredeemable for the
period went beyond what could be justified as a protection of Esso's interest to secure their
loan. I agree with the Court of Appeal that in the circumstances «Esso» should be entitled to
redeem.

In the result he allowed the appeal in regard to the Mustow Green «Garage» and dismissed
the appeal in regard to the Corner «Garage. 
Case
Judgement
Table of
contents
 Order

 Judgment
by Lord
Reid
 Judgment
by Lord
Morris of
Borth-y-
Gest
 Judgment
by Lord
Hodson
 Judgment
by Lord
Pearce
 Judgment
by Lord
Wilberforc
e
LORD PERACE

My Lords, on the assumption that the solus agreement relating to the Mustow Green Garage
comes within the ambit of the doctrine of restraint of trade and that its reasonableness is a
matter which the courts must decide, he was of the opinion that it is reasonable.

The period of five years has been approved as a reasonable period for agreements of this
nature in Canada (British American Oil Co. v. Hey,McColl Brothers v. Aver,Great Eastern Oil &
Import Co. Ltd. v. ChafeF60 and in South Africa (Shell Co. of S.A. Ltd. v. Gerran's Garages (Pty.)
Ltd1 In the courts of this country there is nothing which suggests that five years is an
unreasonable length of time for a tie of this kind in a trade of this kind.

Since the war there has been a world-wide re-organisation of the petrol industry. The old
haphazard distribution has, in the interests of economy, efficiency and finance been converted
into a distribution by the respective petrol producers through their own individual (and as a
rule improved and more efficient) outlets. Vast sums have been spent on refineries, the
improvement of garages and the like. Hand-to-mouth arrangements are no longer
commercially suitable to the industry and considerable planning (involving inter alia the
geographical spacing of the outlets) is obviously necessary. The garage proprietors were nòt at
any disadvantage in dealing with the various competing producers of petrol. To hold that five-
year periods are too long for the ties between the producers and their outlets would, in my
opinion, be out of accord with modern commercial needs, would cause an embarrassment to
the trade and would not safeguard any public or private interest that needs protection.he
found that regard 21 years as being longer than was reasonable in the circumstances.

It is important that the court, in weighing the question of reasonableness, should give full
weight to commercial practices and to the generality of contracts made freely by parties
bargaining on equal terms. Undue interference, though imposed on the ground of promoting
freedom of trade, may in the result hamper and restrict the honest trader and, on a wider view,
injure trade more than it helps it. If a man wishes to tie himself for his own good commercial
reasons to a particular supplier or customer it may be no kindness to him to subject his
contract to the arbitrary rule that the courts will always reserve to him a right to go back on his
bargain if the court thinks fit. For such a reservation prevents the honest man from getting full
value for the tie which he intends, in spite of any reservation imposed by the courts, to honour.

And it may enable a less honest man to keep the fruits of a bargain from which he afterwards
resiles. It may be in this respect similar to imposing on a trader the fetters of infancy; and many
an upstanding infant who wishes to trade or buy a house or motorcar has found difficulty and
frustration in the rule which the court has imposed for his protection. Where there are no
circumstances of oppression, the court should tread warily in substituting its own views for
those of current commerce generally and the contracting parties in particular. For that reason, I
consider that the courts require on such a matter full guidance from evidence of all the
surrounding circumstances and of relevant commercial practice. They must also have regard to
the consideration. It is clear that the question of the consideration weighed with Lord
Macnaghten in the Nordenfelt case. And although the court may not be able to weigh the
details of the advantages and disadvantages with great nicety it must appreciate the
consideration at least in its more general aspects. Without such guidance they cannot hope to
arrive at a sensible and up-to-date conclusion on what is reasonable. That is not to say that,
when it is clear that current contracts (containing restraints), however widespread, are in fact a
danger and disservice to the public and to traders, the court should hesitate to interfere.

The rule relating to restraint of trade is bound to be a compromise, as are all rules imposed for
freedom's sake. The law fetters traders by a particular inability to limit their freedom of trade
so that it may protect the general freedom of trade and the good of the community. And, since
the rule must be a compromise, it is difficult to define its limits on any logical basis.

The court's right to interfere with contracts in restraint of trade (by withholding its
enforcement, which is the ultimate sanction of contracts and to which the parties are normally
entitled) has been put in very wide words. Those words, though adequate and appropriate to
the particular cases in which they were uttered, were not directed towards an exact
demarcation of the line where the court will have a right to investigate whether a bargain is
reasonable and will decline to enforce it if it is not. The famous passages from the opinion of
Lord Macnaghten in the Nordenfelt caseF69 and the opinion of Lord Parker of Waddington in the
Adelaide Steamship caseF70 are not expressly limited in any way. Since any man who sells the
whole, or even a substantial part, of his services, his output, his custom or his commercial
loyalty to one party is thereby restraining himself from selling them to other persons, it might
be argued that the court can investigate the reasonableness of any such contract and allow the
contracting party to resile subsequently from any bargain which it considers an unreasonable
restraint upon his liberty of trade with

But the technicalities of the position where the mortgagor has no subdemise and is only
notionally a lessor in possession put it on the wrong side of the line and the mortgagor cannot,
therefore, come into the class of lessees to whose covenants the doctrine has no application.

But on the question whether a restraint is reasonable, the fact that it is contained as a term in a
mortgage may be a determining factor in its favour. The object of a mortgage is to provide fair
security for the lender. And a restraint may be reasonably necessary to protect the security
when it would not have been reasonable without that object. Moreover, it seems usually
reasonable for the tie to subsist as long as there is a loan outstanding which the borrower is
unable or unwilling to repay. It may be that even so there must be a limit; but, if so, I would not
regard 21 years as necessarily excessive since ex hypothesi that length of time was
commercially necessary for the borrower to have the benefit of the loan for his business. If,
therefore, there had been in the mortgage of the Corner Garage a right to redeem either when
the mortgagor wished or at any time after a reasonable term of years, say five or seven years,
and thereby to terminate the tie I would not have regarded the tie as unreasonable, in view of
the amount of the loan. But here there was no such right to redeem. Nor did the tie add
anything to the protection of the security. Here even in the most unlikely event of a shortage of
petrol supplies the supplier has a discretion not to supply if his own sources of supply fail or go
short. And in any other set of circumstances I cannot think that a tied garage would be more
valuable than, or even as valuable as, a free garage. Moreover, if the mortgagees entered on
their security they would have to treat it as a free garage and account on that basis. If one
regards the mortgage as a whole, the prolonged fetter on the right to redeem seems to have
been inserted merely to prolong the tie. In this case, therefore, the existence of the mortgage
neither removes the tie from the area to which the doctrine of restraint of trade applies nor, in
the particular circumstances, does it assist the appellant on the question whether the tie was
reasonable.

Mocatta J. in his clear and careful judgment held that neither tie was in restraint of trade since
it was merely restrictive of the trading use to be made of a particular piece of land so that the
doctrine of restraint of trade had no application.

Finally, there is the important question whether this was a mere agreement for the promotion
of trade and not an agreement in restraint of it.

Somewhere there must be a line between those contracts which are in restraint of trade and
whose reasonableness can, therefore, be considered by the courts and those contracts which
merely regulate the normal commercial relations between the parties and are, therefore, free
from doctrine. The present case seems to be in borderline.

When a contract only ties the parties during the continuance of the contract, and the negative
ties are only those which are incidental and normal to the positive commercial arrangements at
which the contract aims, even though those ties exclude all dealings with others, there is no
restraint of trade within the meaning of the doctrine and no question of reasonableness arises.
If, however, the contract ties the trading activities of either party after its determination, it is a
restraint of trade, and the question of reasonableness arises. So, too, if during the contract one
of the parties is too unilaterally fettered so that the contract loses its character of a contract for
the regulation and promotion of trade and acquires the predominant character of a contract in
restraint of trade. In that case the rationale of Young v. Timmin comes into play and the
question whether it is reasonable arises.

I do not here find help in the well-known phrases that a man is not entitled to protect himself
against competition per se or that he is only entitled to protect himself if he has an interest to
protect. It is clear that a restraint which merely damages a covenantor and confers no benefit
on a covenantee is as a rule unreasonable. But here Esso had a definite interest to protect and
secured a definite benefit. They wished to preserve intact their spaced network of outlets in
order that they could continue to sell their products as planned over a period of years in
competition with the other producers. To prevent them from doing so would be an
embarrassment of trade, not a protection of its freedom. If all the other companies owned
garages and Esso were trying for the first time to enter the market it would stifle trading
competition rather than encourage it if Esso were prevented from being able to enter into a
binding solus agreement for a sole outlet in order to compete with the others. And in a
doctrine based on the wide ground of public policy the wider aspects of commerce must always
be considered as well as the narrower aspect of the contract as between the parties.

Since the tie for a period of four years and five months was in the circumstances reasonable, I
would allow the appeal in respect of the Mustow Green Garage. Since the tie for a period of 21
years was not in the circumstances reasonable, I would dismiss the appeal in respect of the
Corner Garage. 

LORD WILBERFORCE

The doctrine of restraint of trade (a convenient, if imprecise, expression which I continue to use) is one
which has throughout the history of its subject-matter been expressed with considerable generality, if
not ambiguity. The best-known general formulations, those of Lord Macnaghten in Nordenfelt  and of
Lord Parker of Waddington in Adelaide, adapted and used by Diplock L.J. in the Court of Appeal in the
Petrofina case, speak generally of all restraints of trade without any attempt at a definition. “restraint
of trade” single passage used indifferently to denote, on the one hand, in a broad popular sense, any
contract which limits the free exercise of trade or business, and, on the other hand, as a term of art
covering those contracts which are to be regarded as offending a rule of public policy. Often, in
reported cases, we find that instead of segregating two questions, (i) whether the contract is in
restraint of trade, (ii) whether, if so, it is "reasonable," the courts have fused the two by asking
whether the contract is in "undue restraint of trade" or by a compound finding that it is not satisfied
that this contract is really in restraint of trade at all but, if it is, it is reasonable.

This does not mean that the question whether a given agreement is in restraint of trade, in either
sense of these words, is nothing more than a question of fact to be individually decided in each case. It
is not to be supposed, or encouraged, that a bare allegation that a contract limits a trader's freedom of
action exposes a party suing on it to the burden of justification. There will always be certain general
categories of contracts as to which it can be said, with some degree of certainty, that the "doctrine"
does or does not apply to them. Positively, there are likely to be certain sensitive areas as to which the
law will require in every case the test of reasonableness to be passed: such an area has long been and
still is that of contracts between employer and employee as regards the period after the employment
has ceased. Negatively, and it is this that concerns us here, there will be types of contract as to which
the law should be prepared to say with some confidence that they do not enter into the field of
restraint of trade at all.

Some such limitation upon the meaning in legal practice of "restraints of trade" must surely have been
present to the minds of Lord Macnaghten and Lord Parker. They cannot have meant to say that any
contract which in whatever way restricts a man's liberty to trade was (either historically under the
common law, or at the time of which they were speaking) prima facie unenforceable and must be
shown to be reasonable. They must have been well aware that areas existed, and always had existed,
in which limitations of this liberty were not only defensible, but were not seriously open to the charge
of restraining trade. Their language, they would surely have said, must be interpreted in relation to
commercial practice and common sens

The line of thought that restrictions may in some contexts be imposed, and upheld, where they have
become part of the accepted pattern or structure of a trade, as encouraging or strengthening trade,
rather than as limiting trade, is I think behind the courts' acceptance of exclusivity contracts and
contracts of sole agency.

These illustrations are sufficient to show that the courts are not lacking in tools which enable them to
select from the whole range of those contracts, which in one way or another limit freedom in trading, .

The test, suggested by the appellants, seems, by comparison, artificial and unreal. The covenant, they
say, is not in restraint of trade because it relates to the use of the respondent's land. Not only does it
require an effort of mind to regard the covenant in this way, but the comment is obvious that an
opposite result would be produced by so slight an adjustment as by relating the covenant to an area of
land instead of to a specific property.

The view which I would take of the agreements moreover agrees, as that suggested by the appellants
does not, with those reported cases which have been cited as bearing most directly upon the present.

In McEllistrim's casethis House decided that the obligation imposed on a farmer to sell all his milk to
the respondent society, a co-operative, was in restraint of trade and unreasonable on the ground that
he was thereby prevented from trading both in a wide area in Western Ireland and (effectively)
elsewhere and that he had no means open to him to withdraw from the agreement. I find it impossible
to extract from the case, even by an argument ex silentio, any inference that had the respondent's
obligations been limited to specified land of his, the restrictions would have been exempted from the
doctrine. I should be much more inclined to read into it a willingness to accept normal co-operative
selling schemes and a rejection of the relevant rule because it was an unusual and excessive fetter on
the farmer's personal liberty. English Hop Growers Ltd. v. Dering was another instance of co-operative
selling. It is one of those cases to which he havs referred in which the decision was a compound one -
that the agreement was not in unreasonable restraint of trade .he need add here only that the
decision, upholding the agreement, is not related in any way to the fact that the contract concerned
the use to be made of land.

On this view of the agreements it becomes necessary to subject them to the test of reasonableness. As
regards the two solus agreements, having had the benefit of reading the opinions which precede mine,
I am content to say that I am in concurrence with them in the view that the Mustow Green agreement
does, and that the Corner Garage agreement does not (on account of its long duration), satisfy the test
of reasonableness in the interests of the parties. He has added two observations. The first relates to
the ground, I think the main ground, on which the Court of Appeal held that even the 4 years and 5
months for which the Mustow Green agreement was to last was too long. They were faced with the
difficulty (which faces us) that there was very little evidence at the trial, and because of the course the
trial took, no finding by the judge, of facts which would support a tie for any particular period. So the
Court of Appeal, which had to decide the question of reasonableness for the first time, devised a
special and more concrete test of their own. They asked themselves the question, how long it would
take Esso to find an alternative site if the respondent's site were liberated from the tie, and Lord
Denning M.R. arrived at a period of 3 years certain and thereafter subject to 2 years' notice. Diplock
L.J., while not committing himself to any firm period, thought that evidence might have justified a
period of 2 years or so, or an indefinite period subject to 2 years' notice. I do not feel able to accept
this-way of dealing with the matter. The parties have contracted in relation to a particular site and no
other: who can say what features of it they considered relevant or significant? How can one judge
what site, or whether any site, would be an "alternative" or to what lengths Esso ought to go to find
one? What degree of continuity at one place is Esso entitled to expect, or, conversely, how often may
Esso be expected to move its outlets without losing goodwill or profits?

None of these questions can, in his opinion, be answered with certainty and the question to be
answered is a different question. For what the court is endeavouring to ascertain is whether it is
unreasonable for Esso in relation to Esso's interest in selling petrol on this location, to bind Harper's to
it in the way that Harper's is bound for the period of the tie; or whether, in the public interest of
preserving liberty of action to Harper's Ltd., they ought not to be held in the fetters which they have
accepted. There appears to me to be enough in the evidence to show that, on Esso's side, to secure a
tie for this period was a legitimate commercial objective; and that as regards Harper's, no public policy
objection existed against holding them so long bound. On this point it is he thought legitimate to draw
support from a number of decisions in various jurisdictions where restrictions of various kinds, over
comparable periods, have been upheld (see British America Oil Co. v. Hey 5 (5 years); Peters American
Delicacy Co. Ltd. v. Patricia's Chocolates & Candies Proprietary Ltd. (3 years); Ampol Petroleum Ltd. v.
Mutton (3 years); Shell Co. of S.A. Ltd. v. Gerran's Garage Ltd. (5 years); Great Eastern Oil Co. Ltd. v.
Chafe (3 years)). I should add that I must not be taken either as suggesting that the periods mentioned
are maximum periods, or as expressing any opinion as to the validity of ties for periods intermediate
between five years and 21 years such as, for example, existed in the Petrofina case (12 years).

The second observation I would make is this: the case has been fought exclusively on the first limb of
the Nordenfelt test of reasonableness (in reference to the interest of the parties) the respondent
explicitly disclaiming any reliance on the second limb (in reference to the interests of the public). The
first limb itself rests on considerations of public policy: it must do so in order to justify releasing the
parties from obligations they have voluntarily accepted. But in relation to many agreements containing
restrictions, there may well be wider issues affecting the interests of the public than those which relate
merely to the interests of the parties; these may have been the subject of inquiry as in this case under
statutory powers (Monopolies and Restrictive Practices (Inquiry and Control) Act, 1948) or the subject
of a finding by another court (Restrictive Trade Practices Act, 1956) or may be investigated by the court
itself. In the present case no separate considerations in this wider field have emerged which are
inconsistent with the validity of the Mustow Green solus agreement - on the contrary such as have
appeared tend to support it, but I venture to think it important that the vitality of the second limb, or
as I would prefer to put it of the wider aspects of a single public policy rule, should continue to be
recognised.

Finally it is necessary to deal separately with the mortgage on the respondent's Corner Garage, which
the appellant contends falls in a separate category, not subject to the "doctrine" of restraint of trade at
all. The submission is that, under accepted principles of equity, there is nothing to prevent a mortgage
being made irredeemable for a period provided (and this is the only suggested limitation) that the
terms of it are not harsh or unconscionableThe best known of these is Biggs v. Hoddinott,a brewery
mortgage case. The decision is conveniently summarised by Lord Davey thus: first that a stipulation for
the continuance of a loan for five years was valid, and secondly, that a covenant to take beer from the
mortgagee limited to the continuance of the security did not clog the equity of redemption

These authorities then establish, and to that extent I have no desire to question them, that as part of a
transaction of mortgage, it is permissible, so far as the rules of equity are concerned, both to postpone
the date of repayment and, at any rate during the period of the loan, to tie the mortgagor to purchase
exclusively the products of the mortgagee. Such an arrangement would fall fairly within the principle I
have earlier suggested, as coming within a recognised and accepted category of transactions, in
precisely the same manner as a lease. But just as provisions contained in a lease, affecting the lessees'
(or lessors') liberty of trade, which pass beyond what is normally found in and ancillary to this type of
transaction and enter upon the field of regulation of the parties' trading activities, may fall to be tested
as possible restraints of trade, so, in my opinion, may those in a mortgage..

He confirmed to be allowed the appeal for the Mustow Green Garage and the judgment and order of
Mocatta J. so far restored. As regards the Corner Garage it should be dismissed.Appeal allowed in part.