#6651 - Esso Petroleum V. Niad - Commercial Remedies BCL

Esso Petroleum v. Niad

Facts

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”).

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.

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.

Holding

Problem with a loss-based award of damages

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.

Damages, Account of profits and restitutionary damages are alternative claims

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.

Account of profits

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.

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.

In my judgment the remedy of an account of profits should be available for breaches of contract such as...