Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1967] UKHL 1

House of Lords

Between

Esso Petroleum Co LtdAppellant

Harper's Garage (Stourport) LtdRespondent

Before

Lord Reid

Lord Morris of Borthy-Gest

Lord Hodson

Lord Pearce

Lord Wilberforce

LORD HODSON

My Lords,

The Appellants are a large company whose most important product is Esso petrol most of which is sold by them to garages and filling stations for resale to the public. The Respondent Company own two garages: they contracted with the Appellants under what are know as solus agreements and bound themselves for the periods of those agreements inter alia to sell at their garages Esso petrol and no other. When cheaper " cut price " petrol came on the market they began to sell it and ceased to sell Esso petrol. The Appellants then raised two actions, now consolidated, to prevent this: they sought injunctions to restrain the Respondents from buying other than from them any motor fuel for resale at these garages. On 17th March, 1955 Mocatta, J. granted an injunction, but on appeal the Court of Appeal set aside this order on the ground that the ties in these agreements were in restraint of trade and were unenforceable. The Appellants now maintain first that these ties were not in restraint of trade and secondly that, if they were, they were in the circumstances valid and enforceable.

The earlier agreement related to the Corner Garage, Stourport, and was to remain in force for 21 years from 1st July, 1962. But, as the case with regard to it is complicated by there being a mortgage in security for money lent by the Appellants to the Respondents, I shall first consider the second agreement which related to the Mustow Green Garage near Kidderminster. This agreement was to remain in force for four years and five months from 1st July, 1963. It appears that the Appellants had a similar agreement with the previous owners of that garage and that this period was chosen because it was the unexpired period of that earlier agreement.

The main provisions of the Mustow Green agreement are that while it remained in force the Respondents agreed to buy from the Appellants their total requirements of motor fuels for resale at that garage and agreed to keep it open at all reasonable hours for the sale of Esso Motor Fuels and Esso Motor oils, and in return the Appellants agreed to sell to the Respon- dents at their wholesale schedule price at the time of delivery, and to allow a rebate from that price of one penny farthing per gallon payable quarterly. There were a number of other provisions with regard to advertis- ing, service at the garage etc. which I shall not specify because they do not appear to me to assist in determining the questions at issue. But there are two other provisions which I must notice. If the Respondents wished to dis- pose of the garage they were not to do so except to a person who agreed to be substituted for them for all purposes of this agreement. If the agreement is otherwise unobjectionable I do not think that this provision can invalidate it because it was only by some such means that the Appellants could ensure that their petrol would continue to be sold at this garage for the full period of the agreement. The other is a provision for retail price maintenance which the Appellants at that time inserted in all their numerous tieing agreements with garages and filling stations. Shortly before the present action was raised the Appellants intimated that they would not enforce this clause against any of their tied customers. The Respondents were in favour of retail price maintenance and their original defence was that this change of policy by the Appellants entitled them to rescind the whole agreement for the tie. This defence was rejected by Mocatta, J. and it has not been maintained before your Lordships.

So I can now turn to the first question in this appeal—whether this agree- ment is to be regarded in law as an agreement in restraint of trade. The law with regard to restraint of trade is of ancient origin. There are refer- ences to it in the Year Books and it seems to have received considerable

attention in the time of Queen Elizabeth I. But the old cases lie within a narrow compass. It seems to have been common for an apprentice or a craftsman to agree with his master that he would not compete with him after leaving his service, and also for a trader who sold his business to agree that he would not thereafter compete with the purchaser of his business. But no early case was cited which did not fall within one or other of these categories. And even in recent times there have been surprisingly few reported cases falling outside these categories in which restraint of trade has been pleaded: we were informed by Counsel that there are only about forty English cases which can be traced. On the other hand there is an immense body of authorities with regard to the two original categories. I have not found it an easy task to determine how far principles developed for the original categories have been or should be extended.

The most general statement with regard to restraint of trade is that of Lord Parker in Commonwealth of Australia v. Adelaide Steamship Com- pany

[1913] AC 781

at page 794. He said:

" Monopolies and contracts in " restraint of trade have this in common, that they both, if enforced, involve " a derogation from the common law right in virtue of which any member " of the community may exercise any trade or business he pleases and in " such manner as he thinks best in his own interests "

. But that cannot have been intended to be a definition: all contracts in restraint of trade involve such a derogation but not all contracts involving such a derogation are contracts in restraint of trade. Whenever a man agrees to do something over a period he thereby puts it wholly or partly out of his power to " exer- " cise any trade or business he pleases " during that period. He may enter into a contract of service or may agree to give his exclusive services to another: then during the period of the contract he is not entitled to engage in other business activities. But no one has ever suggested that such con- tracts are in restraint of trade except in very unusual circumstances, such as those in Young v. Timmins (1831) C. & J. 331 where the servant had agreed not to work for anyone else but might have been given no work and received no remuneration for considerable periods and thus have been deprived of a livelihood: the grounds of judgment may not now be correct but I think that the case was rightly decided.

That Lord Parker cannot have intended those words to be a definition is I think made clear by a passage lower on the same page of the report:

" Contracts in restraint of trade were subject to somewhat different " considerations. There is little doubt that the common law in the " earlier stages of its growth treated all " (my italics) " such contracts " as contracts of imperfect obligation, if not void for all purposes; they " were said to be against public policy in the sense that it was deemed " impolitic to enforce them."

He certainly never supposed that all contracts which by obliging a man to act in one way (e.g. as a servant) prevented him from doing other things had ever been held to be of imperfect obligation or against public policy.

The leading case of Nordenfelt v. Maxim Nordenfelt Guns [1894] A.C. 535 fell within the old categories, and it may be misleading to take the well- known passages out of context and try to apply them to cases of quite different nature. Lord Macnaghten said at page 565:

" The public have an interest in every person's carrying on his trade " freely: so has the individual. All interference with individual liberty " of action in trading, and all restraints of trade of themselves, if there " is nothing more, are contrary to public policy, and therefore void."

By " interference " he meant interference to which the individual had agreed by contract but I am sure that he did not mean to include all cases in which one party had " interfered " with the liberty of another by getting him to agree to give his whole time to the other party's affairs. He had said (on page 564):

" In the age of Queen Elizabeth all restraints of trade, whatever they " were, general or partial, were thought to be contrary to public policy, " and therefore void."

So he only had in mind the two original kinds of case. There was no need in Nordenfelt's case to attempt to define other classes of case to which the doctrine of restraint would apply.

If a contract is within the class of contracts in restraint of trade the law which applies to it is quite different from the law which applies to contracts generally. In general unless a contract is vitiated by duress fraud or mistake its terms will be enforced though unreasonable or even harsh and uncon- scionable, but here a term in restraint of trade will not be enforced unless it is reasonable. And in the ordinary case the Court will not remake a contract: unless in the special case where the contract is severable, it will not strike out one provision as unenforceable and enforce the rest. But here the party who has been paid for agreeing to the restraint may be unjustly enriched if the Court holds the restraint to be too wide to be enforceable and is unable to adjust the consideration given by the other party.

It is much too late now to say that this rather anomalous doctrine of restraint of trade can be confined to the two classes of case to which it was originally applied. But the cases outside these two classes afford little guidance as to the circumstances in which it should be applied. In some it has been assumed that the doctrine applies and the controversy has been whether the restraint was reasonable. And in others where one might have expected the point to be taken it was not taken, perhaps because Counsel thought that there was no chance of the Court holding that the restraint was too wide to be reasonable.

In McEllistrim v. Ballymacelligott Co-operative Society [1919] A.C. 548 the Society had changed its rules so as to prevent any member from selling (except under heavy penalty) any milk produced by him in a large area of County Kerry to anyone except the Society, and a member could not terminate his membership without the Society's permission. The plaintiff, who was a member, sought a declaration that the new rules were in unreasonable restraint of trade. Lord Birkenhead, L.C., assumed that they were in restraint of trade and held that they were unreasonable, as did Lord Atkinson and Lord Shaw. Lord Finlay said (at page 571), having referred to Morris v. Saxelby [1916] I A.C. 688:

"The present case is really governed by the principle " there enunciated that ' public policy requires that every man shall be at "

' liberty to work for himself and shall not be at liberty to deprive himself " ' or the State of his labour, skill or talent, by any contract that he enters " ' into '. This is equally applicable to the right to sell his goods ". I doubt whether this last sentence is quite accurate. It would seem to mean that every contract by which a man (or a company) agrees to sell his whole output (or even half of it) for any future period to the other party to the contract is a contract in restraint of trade because it restricts his liberty to sell as he pleases, and is therefore unenforceable unless his agreement can be justified as being reasonable. There must have been many ordinary commercial contracts of that kind in the past but no one has ever suggested that they were in restraint of trade. But McEllistrim's case at least establishes that there comes a point at which such a contract can come within the doctrine of restraint of trade.

In English Hop Growers v. Dering [1928] 2 K.B. 174 the defendant had agreed to sell his crop of hops to the Society for five years. He failed to do so and was sued: in defence he pleaded that the contract was in restraint of trade. The restraint was held to be reasonable but both Scrutton, L.J., and the other Members of the Court appear to have been prepared to treat this as a contract in restraint of trade. This was not just an ordinary agree- ment, it was rather a marketing scheme accepted by the great majority of English hop growers.

In Foley v. Classique Coaches [1934] 2 K.B. 1 the purchaser of a piece of land agreed with the seller to take from him all the petrol required for the purchaser's business carried on there. The question whether this was in restraint of trade was dealt with briefly, Scrutton, L.J., merely saying that it was not in " undue restraint of trade ". In Servais Bouchard v. Princes Hall Restaurant [1904] 20 T.L.R. 574 the Court of Appeal held valid a

contract by which the Restaurant agreed to take all burgundy sold there from the plaintiffs. It is not very clear whether they held that this was not in restraint of trade or that, though in restraint of trade, it was reasonable.

In United Shoe Machinery Company of Canada v. Brunet

[1909] AC 330

the Company leased machinery under a condition that it should not be used in conjunction with machinery made by any other manufacturer, and it was held that this condition was not in restraint of trade. I do not think that the reasons given for the decision are very satisfactory. Mogul Steamship Com- pany v. McGregor Gow & Co.

[1892] AC 25

is relied on. There an associa- tion of shipowners agreed to use various lawful means to dissuade customers from shipping their goods by the Mogul line. It was held that this agree- ment was lawful in the sense that it gave the Mogul Company no right to sue them. But it was recognised at least by the majority of their Lordships that the agreement would have been unenforceable as between the members of the association. Lord Watson said (at page 42) " an agreement by traders " to combine for a lawful purpose, and for a specified time, is not binding " upon any of the parties to it if he chooses to withdraw, and consequently " cannot be enforced in invitum ". One must always bear in mind that an agreement in restraint of trade is not generally unlawful if the parties choose to abide by it: it is only unenforceable if a party chooses not to abide by it.

The main argument submitted for the Appellant on this matter was that restraint of trade means a personal restraint and does not apply to a restraint on the use of a particular piece of land. Otherwise, it was said, every covenant running with the land which prevents its use for all or for some trading purposes would be a covenant in restraint of trade and therefore unenforceable unless it could be shown to be reasonable and for the protec- tion of some legitimate interest. It was said that the present agreement only prevents the sale of petrol from other suppliers on the site of the Mustow Green garage: It leaves the Respondents free to trade anywhere else in any way they choose. But in many cases a trader trading at a particular place does not have the resources to enable him to begin trading elsewhere as well, and if he did he might find it difficult to find another suitable garage for sale or to get planning permission to open a new filling station on another site. As the whole doctrine of restraint of trade is based on public policy its application ought to depend less on legal niceties or theoretical possibilities than on the practical effect of a restraint in hampering that freedom which it is the policy of the law to protect.

It is true that it would be an innovation to hold that ordinary negative covenants preventing the use of a particular site for trading of all kinds or of a particular kind are within the scope of the doctrine of restraint of trade. I do not think they are. Restraint of trade appears to me to imply that a man contracts to give up some freedom which otherwise he would have had. A person buying or leasing land had no previous right to be there at all, let alone to trade there, and when he takes possession of that land subject to a negative restrictive covenant he gives up no right or freedom which he previously had. I think that the " tied house " cases might be explained in this way, apart from Biggs v. Hoddinott

[1898] 2 Ch 307

where the owner of a freehouse had agreed to a tie in favour of a brewer who had lent him money. Restraint of trade was not pleaded. If it had been the restraint would probably have been held to be reasonable. But there is some difficulty if a restraint in a lease not merely prevents the person who takes possession of the land under the lease from doing certain things there, but also obliges him to act in a particular way. In the present case the Respondents before they made this agreement were entitled to use this land in any lawful way they chose, and by making this agreement they agreed to restrict their right by giving up their right to sell there petrol not supplied by the Appellants.

In my view this agreement is within the scope of the doctrine of restraint of trade as it had been developed in English law. Not only have the Respondents agreed negatively not to sell other petrol but they have agreed positively to keep this garage open for the sale of the Appellants' petrol at all reasonable hours throughout the period of the tie. It was argued that

this was merely regulating the Respondent's trading and rather promoting than restraining his trade. But regulating a person's existing trade may be a greater restraint than prohibiting him from engaging in a new trade. And a contract to take one's whole supply from one source may be much more hampering than a contract to sell one's whole output to one buyer. I would not attempt to define the dividing line between contracts which are and contracts which are not in restraint of trade, but in my view this contract (must be held to be in restraint of trade. So it is necessary to consider whether its provisions can be justified.

But before considering this question I must deal briefly with the other agreement tying the Corner Garage for 21 years. The rebate and other advantages to the Respondents were similar to those in the Mustow Green agreement but in addition the Appellants made a loan of £7,000 to the Respondents to enable them to improve their garage and this loan was to be repaid over the 21 years of the tie. In security they took a mortgage of this garage. The agreement provided that the loan should not be paid off earlier than at the dates stipulated. But the Respondents now tender the unpaid balance of the loan and they say that the Appellants have no interest to refuse to accept repayment now except in order to maintain the tie for the full 21 years.

The Appellants argue that the fact that there is a mortgage excludes any application of the doctrine of restraint of trade. But I agree with your Lordships in rejecting that argument. I am prepared to assume that, if the Respondents had not offered to repay the loan so far as it is still out- standing, the Appellants would have been entitled to retain the tie. But, as they have tendered repayment, I do not think that the existence of the loan and the mortgage puts the Appellants in any stronger position to maintain the tie than they would have been in if the original agreements had permitted repayment at an earlier date. The Appellants must shew that in the circumstances when the agreement was made a tie for 21 years was justifiable.

It is now generally accepted that a provision in a contract which is to be regarded as in restraint of trade must be justified if it is to be enforceable, and that the law on this matter was correctly stated by Lord Macnaghten in the Nordenfelt case. He said:

" 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 protec- " tion to the party in whose favour it is imposed, while at the same " time it is in no way injurious to the public."

So in every case it is necessary to consider first whether the restraint went farther than to afford adequate protection to the party in whose favour it was granted, secondly whether it can be justified as being in the interests of the party restrained, and thirdly whether it must be held contrary to the public interest. I find it difficult to agree with the way in which the Court has in some cases treated the interests of the party restrained. Surely it can never be in the interest of a person to agree to suffer a restraint unless he gets some compensating advantage, direct or indirect. And Lord Macnaghten said " of course the quantum of consideration may enter into the question " of the reasonableness of the contract ".

Where two experienced traders are bargaining on equal terms and one has agreed to a restraint for reasons which seem good to him the Court is in grave danger of stultifying itself if it says that it knows that trader's interest better than he does himself. But there may well be cases where, although the party to be restrained has deliberately accepted the main terms of the contract, he has been at a disadvantage as regards other terms: for example where a set of conditions has been incorporated which has not been the subject of negotiation—there the Court may have greater freedom to hold them unreasonable.

I think that in some cases where the Court has held that a restraint was not in the interests of the parties it would have been more correct to hold that the restraint was against the public interest. For example in Kores v. Kolok

[1959] 1 Ch. 108

the parties had agreed that neither would employ any man who had left the service of the other. From their own points of view there was probably very good reason for that. But it could well be held to be against the public interest to interfere in this way with the freedom of their employees. If the parties chose to abide by their agreement an employee would have no more right to complain than the Mogul Company had in the Mogul case. But the law would not countenance their agreement by enforcing it. And in cases where a party, who is in no way at a disad- vantage in bargaining, chooses to take a calculated risk, I see no reason why the Court should say that he has acted against his own interests: but it can say that the restraint might well produce a situation which would be contrary to the public interest.

Again, whether or not a restraint is in the personal interests of the parties, it is I think well established that the Court will not enforce a restraint which goes farther than affording adequate protection to the legitimate interests of the party in whose favour it is granted. This must I think be because too wide a restraint is against the public interest. It has often been said that a person is not entitled to be protected against mere competition. I do not find that very helpful in a case like the present. I think it better to ascertain what were the legitimate interests of the Appellants which they were entitled to protect and then to see whether these restraints were more than adequate for that purpose.

What were the Appellants' legitimate interests must depend largely on what was the state of affairs in their business and with regard to the distribution and sale of petrol generally. And those are questions of fact to be answered by evidence or common knowledge. In the present case restraint of trade was not pleaded originally and the Appellants only received notice that it was to be raised a fortnight before the trial. They may have been wise in not seeking a postponement of the trial when the pleadings were amended. But the result has been that the evidence on this matter is scanty. I think however that it is legitimate to supplement it from the considerable body of reported cases regarding solus agreements and from the facts found in the Report of the Monopolies Commission of July, 1965.

When petrol rationing came to an end in 1950 the large producers began to make agreements, now known as solus agreements, with garage owners under which the garage owner, in return for certain advantages, agreed to sell only the petrol of the producer with whom he made the agreement. Within a short time three-quarters of the filling stations in this country were tied in that way and by the dates of the agreements in this case over 90 per cent, had agreed to ties. It appears that the garage owners were not at a disad- vantage in bargaining with the large producing companies as there was intense competition between these companies to obtain these ties. So we can assume that both the garage owners and the companies thought that such ties were to their advantage. And it is not said in this case that all ties are either against the public interest or against the interests of the parties. The Respondents' case is that the ties with which we are concerned are for too long periods.

The advantage to the garage owner is that he gets a rebate on the whole- sale price of the petrol which he buys and also may get other benefits or financial assistance. The main advantages for the producing company appear to be that distribution is made easier and more economical and that it is assured of a steady outlet for its petrol over a period. As regards distribution it appears that there were some 35,000 filling stations in this country at the relevant time, of which about a fifth were tied to the Appel- lants. So they only have to distribute to some 7,000 filing stations instead of to a very much larger number if most filling stations sold several brands of petrol. But the main reason why the producing companies want ties for five years and more instead of ties for one or two years only seems to

be that they can organise their business better if on the average only one- fifth or less of their ties come to an end in any one year. The Appellants make a point of the fact that they have invested some £200 millions in refineries and other plant and that they could not have done that unless they could foresee a steady and assured level of sales of their petrol. Most of their ties appear to have been made for periods of between five and twenty years. But we have no evidence as to the precise additional advan- tage which they derive from a five year tie as compared with a two year tie or from a twenty years tie as compared with a five year tie.

The Court of Appeal held that these ties were for unreasonably long periods. They thought that, if for any reason the Respondents ceased to sell the Appellants' petrol, the Appellants could have found other suitable outlets in the neighbourhood within two or three years. I do not think that that is the right test. In the first place there was no evidence about this and I do not think that it would be practicable to apply this test in practice. It might happen that when the Respondents ceased to sell their petrol, the Appellants would find such an alternative outlet in a very short time. But, looking to the fact that well over 90 per cent, of existing filling stations are tied and that there may be great difficulty in opening a new filling station, it might take a very long time to find an alternative. Any estimate of how long it might take to find suitable alternatives for the Respondents' filling stations could be little better than guesswork.

I do not think that the Appellants' interest can be regarded so narrowly. They are not so much concerned with any particular outlet as with main- taining a stable system of distribution throughout the country so as to enable their business to be run efficiently and economically. In my view there is 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 Appellants' legitimate interests. And if that is so I cannot find anything in the details of the Mustow Green agreement which would indicate that it is unreasonable. It is true that if some of the provisions were operated by the Appellants in a manner which would be commercially unreasonable they might put the Respondents in difficulties. But I think that a Court must have regard to the fact that the Appellants must act in such a way that they will be able to obtain renewals of the great majority of their very numerous ties some of which will come to an end almost every week. If in such circumstances a garage owner chooses to rely on the commercial probity and good sense of the producer I do not think that a Court should hold his agreement unreasonable because it is legally capable of some misuse. I would there- fore allow the appeal as regards the Mustow Green agreement.

But the Corner Garage agreement involves much more difficulty. Taking first the legitimate interests of the Appellants, a new argument was submitted to your Lordships that, apart from any question of security for their loan, it would be unfair to the Appellants if the Respondents, having used the Appellants' money to build up their business, were entitled after a com- paratively short time to be free to seek better terms from a competing producer. But there is no material 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 tie for twenty-one years stretches far beyond any period for which developments are reasonably foreseeable. Restrictions on the garage owner which might seem tolerable and reasonable in reason- ably foreseeable conditions might come to have a very different effect in quite different conditions: the public interest comes in here more strongly. And, apart from a case where he gets a loan, a garage owner appears to get no greater advantage from a twenty year tie than he gets from a five year tie. So I would think that there must at least be some clearly established advantage to the producing company—something to show that a shorter period would not be adequate—before so long a period could be justified. But in this case there is no evidence to prove anything of the kind. And the other material which I have thought it right to consider does not appear to me to assist the Appellant here. I would therefore dismiss the appeal as regards the Corner Garage agreement.

I would add that the decision in this case—particularly in view of the paucity of evidence—ought not in my view to be regarded as laying down any general rule as to the length of tie permissible in a solus agreement. And I do not think that the case of Petrofina v. Martin

[1966] Ch. 146

can be regarded as laying down a general rule. The agreement there was in un- usual terms. I think the decision was right although I do not agree with all the reasons. But I must not be taken as expressing any opinion as to the validity of ties for periods mid-way between the two periods with which the present case is concerned.

Lord Morris of Borth-y-Gest

My Lords,

We have been concerned in this case to decide as to the application of competing principles of law. In a system of law not contained in any formal code decision is reached by applying settled or recognised principle to particular ascertained facts. But in some situations more than one prin- ciple may be relevant and important. Particularly is this so where principles have, as their foundation, the dictates of public policy. That has been so in the case of those which have been prominent in the arguments in this case. The Respondent Company (Harpers) assert, while the Appellants (Esso), deny that what is generally called the " doctrine " of restraint of trade 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. Whether the doctrine must be considered and, if so, with what result is now the effective issue in the litigation, though it was not at first raised and, indeed, only emerged as an issue on the eve or at the commencement of the trial.

The law has for many centuries set itself against restraint of trade. Monopolies, likewise, have always been in disfavour with the law. In keeping with this, 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. (See Mitchel v. Reynolds 1 Peere Williams 181.) The abhorrence of such restraints can be strong enough to prevail over certain well accepted principles. In general the law recognises that there is freedom to enter into any contract that can lawfully be made. The law lends its weight to uphold and enforce contracts freely entered into. The 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. The law recognises that if business contracts are fairly made by parties who are on equal terms such parties should know their business best. If there has been no irregularity the law does not mend or amend contracts merely for the relief of those for whom things have not turned out well. But when all this is fully recognised yet the law, in some circumstances, reserves a right to say that a contract is in restraint of trade and that to be enforceable it must pass a test of reasonableness. In the competition between varying principles possible applicable that which makes certain covenants in restraint of trade unenforce- able will in some circumstances be strong enough to prevail. Public policy will give it priority. It will have such priority because of the reasonable necessity to ensure and preserve freedom of trade. Some words spoken by Sir George Jessell M.R. in Printing and Numerical Registering Co. v. Sampson L.R. 19 Eq. 462, may, however, be kept in mind. At page 465 he said: —

" 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 under- " standing 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."

To a similar purport were some words by Scrutton L.J. in his judgment in English Hop Growers Ltd. v. Dering [1928] 2 K.B. 174, when at page 181 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."

While accepting the power and weight of these observations it can be remembered that, even if a contract is in restraint of trade, it will never- theless be enforceable provided always that the restriction is reasonable in reference to the interest of the parties and in reference to the interest of the public. Though a person has not been under any compulsion nor has laboured under any deception when making a contract under which he agrees to a restraint in trade yet in some circumstances the law allows him to seek to defend himself from compliance with the terms of the restraint by inviting the Court to say that the contract should not be enforced.

As, therefore, the policy of the law is to uphold freedom to contract and also to uphold freedom to trade a certain adjustment is necessary. In his speech in Herbert Morris Limited v. Saxelby [1916] 1 A.C. 688 Lord Shaw at page 716 said: —

" The delicacy of the operation of law in settling the bounds of either " freedom has long been familiar. In these cases, as I have pointed out, " there are two freedoms to be considered—one the freedom of trade " and the other the freedom of contract: and to that I will now again " venture to add that it is a mistake to think that public interest is only " concerned with one: it is concerned with both."

The enquiry 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.

A review of the authorities shows that in some groups of cases there has been no assertion that the doctrine or principle of trade applies. It is said, therefore, that there are classes of cases in which the doctrine does not apply, and attempt is made to define those groups of cases in which alone the doctrine does apply. For my part, I doubt whether it is possible or desirable to record any very rigid classification of groups of cases. Nor do I think that any firm interference can be deduced from the circumstances that in respect of certain groups of cases no one has claimed that the doctrine applies or has sought to invoke it. That might be for the reason that there are some situations in which it would not be thought by anyone that the doctrine could successfully be invoked. In some cases it matters not whether it is said that the doctrine does not apply or whether it is said that a restraint would so obviously pass the test of reasonableness that no one would be disposed even to seek to invoke the doctrine. I take the test to be as laid down by Lord Macnaghten in his speech in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co.

[1894] AC 535

at page 565 : -

" All interference with the individual liberty of action in trading, and " all restraints of trade of themselves, if there is nothing more, are con- " trary 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 circum- " stances 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. Thus Lord Denning M.R., in the Petrofina case (Petrofina (Great Britain) Ltd. v. Martin

[1966] 1 Ch. 140

, 169) said: —

" Every member of the community is entitled to carry on any trade " or business he chooses and in such manner as he thinks most desirable " in his own interests, so long as he does nothing unlawful: with the " consequence that any contract which interferes with the free exercise " of his trade or business, by restricting him in the work he may do for " others, or the arrangements which he may make with others, is a con- " tract in restraint of trade. It is invalid unless it is reasonable as " between the parties and not injurious to the public interest."

So Diplock, L.J. in the same case (at page 180) said:-

" A contract in restraint of trade is one in which a party (the covenan- " tor) 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."

These are helpful expositions provided they are used rationally and not too literally. Thus, if A made a contract under which he willingly agreed to serve B on reasonable terms for a few years and to give his whole working time to B it would be surprising indeed if it were sought to describe the contract as being in restraint of trade. In fact such a contract would very likely be for the advancement of trade. Yet Counsel for Harper's did not shrink from the assertion that every contract of persona! service is a contract in restraint of trade. I cannot think that either authority or logic requires acceptance of so extreme a view.

I approach the present case by considering first whether the agreements made by Harper's should, in a reasonable 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.

The essence of the agreement of the 27th June, 1963, in reference to

Mustow Green Garage was that Harper's became tied to Esso. Harper's

agreed to buy from Esso their total requirements of motor fuels for resale

at Mustow Green Garage. They agreed also to operate the garage in

accordance with the Esso Dealer Co-operation Plan, one term of which was

" To keep the Service Station open at all reasonable hours for the use of

" Esso Motor fuels and Esso Motor Oils." I cannot accept the contention

that there was no positive obligation in regard to operating the garage but

only an agreement as to method of operation if the garage was in fact being

operated. In my view, Harper's agreed to operate the Garage in a particular

way and, above all, they agreed 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 the 5th July, 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 accented that a covenant in a lease of premises which prohibits the carrying-on of any trade or business upon the premises is not subjects 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, i.e., 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 his trade or business. In such a situation (i.e., 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 properly character. They were concerned with the way in which Harper's would carry on their garages and their businesses. As Harman, L.J., said in the Petrofina case, it is a person who trades and not the land.

It 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 applica- tion to a covenant which is merely restrictive of the trading use to be made of a particular piece of land. If such a proposition were held to be sound then, as Diplock L.J. pointed out in the Petrofina case, there would be scope to reframe radius covenants in restraint of trade, even where the radius was very wide, as covenants not to carry on a particular trade in a particular manner on any premises in a defined area. 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. Bering [1928] 2 K.B. 174 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. In another

case, Servais Bouchard v. The Princes Hall Restaurant (Limited) 20 T.L.R. 574 the Defendants agreed (for a consideration) to give the Plaintiffs the exclusive right of supplying certain wine for the Defendants' restaurant. To a claim made by the Plaintiffs for a breach of the agreement one plea made by the Defendants was that the contract was void as being in restraint of trade and unlimited in time. The Master of the Rolls in his judgment said that, in his opinion, the case did not come within the principle by which contracts in restraint of trade were held to be invalid as being contrary to public policy. He thought that contracts such as those by which persons bound themselves to supply customers with goods obtained from a particular merchant exclusively were for the benefit of the community. He pointed out that contracts for sole agency were matters of everyday occurrence. He said that if the contract was one of a kind which might be treated as violating the common law rule against contracts in restraint of trade the circumstances were such as to bring in the element of reasonableness which afforded an answer to the general rule. Stirling L.J. in his judgment considered and gave reasons for rejecting the contention that the contract, being un- limited in point of time, was in restraint of trade. He did not suggest that, as the Defendants' agreement was restrictive of the trading use that they would make of their premises, their plea was not open to them and could not be considered.

In another case. Foley v. Classique Coaches Ltd. [1934] 2 K.B. 1, the Plaintiff agreed to sell a piece of land (adjoining other land belonging to him) to the Defendants who proposed to use the land for their business as motor coach proprietors. The sale took place. The sale was made subject to the Defendants entering into another agreement, which they did, to buy from the Plaintiff (who had a petrol-filling station on his adjoining land) all the petrol that they needed for the running of their business as motor coach proprietors so long as the Plaintiff was able to supply them. In proceedings by the Plaintiff to enforce this latter agreement one contention of the Defendants was that the agreement was an unreasonable and un- necessary restraint of the Defendants' trade and was contrary to public policy and illegal. It was held that there was no " undue " restraint of trade. It does not appear to have been suggested that, as the Defendants' agreement was restrictive of the trading use that they would make of the land which they acquired, the doctrine of restraint of trade could not possibly have applica- tion or be raised for consideration.

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 circum- stances 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. In Herbert Morris v. Saxelby [1916] 1 A.C. 688 Lord Parker of Waddington at page 707 so stated the matter. In speaking of the covenantor he added: —

" As long as the restraint to which he subjects himself is no wider than " is required for the adequate protection of the person in whose favour " it is created, it is in his interest to be able to bind himself for the sake " of the indirect advantages he may obtain by so doing."

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-operative Plan. Following their initiative in introducing solus agreements other com- panies 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 agree- ments. Of the 35,000 over 6,600 were with Esso. The circumstance 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 particu- lar, 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 re-sale 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 obliga- tions for any remaining period. Though in regard to the price that Harpers 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 considered, 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 mort- gage. The solus agreement (dated the 5th July, 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 the 12th July, 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 the 6th October. 1962). Harper's were to pay off the loan (with interest) over the period of 21 years. Harper's could only redeem in accordance with the agreement as to repay- ment—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.

A consideration of the facts and the documents leads me to the view 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. As to this I will content myself with expressing agreement with the Court of Appeal, that the doctrine of restraint of trade does apply to mortgages. In regard to the period of 21 years I con- sider 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 circum- stances Esso should be entitled to redeem.

In the result I would allow the appeal in regard to the Mustow Green Garage and I would dismiss the appeal in regard to the Corner Garage.

Lord Hodson

My Lords,

This appeal arises from two actions brought by the Esso Petroleum Company, Limited, against Harper's Garage (Stourport), Limited. The Esso Company had at first instance been granted injunctions against the Garage Company and the Garage Company's counterclaim for certain declarations had been dismissed, but the decision was reversed on appeal and the Esso Company now seek to restore the judgment of the trial judge.

The cases concern what have come to be known as " solus agreements " by which, in recent years, more and more garage stations in this country tied themselves to the big oil companies to buy all their petrol therefrom, to sell no other petrol and to sell at prices fixed by the oil companies. Your Lordships were informed that at the present time of 36,000 stations 35,000 were so tied.

In the cases now under consideration the tie imposed was in the one case (action 259) four years and five months' duration and in the other (action 1249) of 21 years' duration. The first question is whether or not the doctrine of restraint of trade applies to these solus agreements and, if so, does it apply equally to a mortgage which was entered into in the second case in connection with the solus agreement but not in the first case.

The main contention on the part of the Appellants is that these agreements relate to the use of land and that the doctrine of restraint of trade has no application to a restriction imposed on a piece of land as opposed to a restriction imposed on a person or corporation. Such a restriction is exemplified in contracts between master and servant, vendor and purchaser of a business and combinations to restrict output or fix prices or the like. This contention was accepted by the trial judge but has no direct authority to support it. It can be said that in many scores of cases relating, for example, to leases of land by brewers to publicans and, in one case, of a sale of the same sort it has been taken for granted that such restrictive covenants on the use of land are and have been from time immemorial imposed without objection or criticism; therefore, the doctrine has no application. Thus the authorities may be said to support the proposition sub silentio, for no attempt has been made as a rule to attack these covenants on the ground that they are in restraint of trade. An exception is to be found in the case of Catt v. Tourle (1869) L.R. 4 Ch., 654, where a brewer had sold a piece of land to the trustees of a freehold land society who covenanted with him that he, his heirs and assigns should have the exclusive right of supplying beer to any public house erected on the land.

The defendant, also a brewer, acquired a piece of land with notice of the covenant and erected thereon a public house which he supplied with his own beer. The covenant was held not an unreasonable restraint of trade although it was perpetual. Selwyn, L.J. explained the reason in the following words: —

" A restraint preventing a person from carrying on trade within " a certain limit of space, though unlimited as to time, may be good, " and the limit of space may be according to the nature of the trade. " . . . We should be introducing very great uncertainty and con- " fusion into a very large and important trade if we were now to " suggest any doubt as to the validity of a covenant so extremely " common as this is. I think there is no ground for the distinction " which has been contended for, viz. that such a covenant might be " good in a lease for 21, 50 or 100 years, but is not good if entered " into as part of a transaction where the fee simple of a property is " conveyed."

It is to be observed that, if the Appellants were right, the case could have been shortly disposed of by stating that the restriction related to the sale of a piece of land. Nevertheless, restraint of trade was dealt with by the court as if this simple answer was not available. Several cases involving indirectly, if not directly, the use of land have been decided after considera- tion of the doctrine of restraint of trade as being applicable. Examples are: McEllistrim v. Ballymacelligott Co-operative Agriculture and Dairy Society Limited [1919] A.C. 548; English Hop Growers Limited v. Dering [1928] 2 K.B. 174 and Foley v. Classique Coaches Limited [1934] 2 K.B. 1. Apart from authority, it would appear strange if the court, as it admittedly can, were to investigate the reasonableness of a restraint of trade imposed on an area or within a radius but were to be precluded from investigating one imposed on a particular piece of land, for these two things are in substance the same in their effect in imposing a restraint of trade within a prescribed area.

One learned writer alone, the late Mr. F. A. Gare, laid down categorically that restraints upon trade which arise upon a sale of land are of a totally different nature from those arising on a sale of goodwill or a partnership agreement. He added that these restraints had never been treated by the courts as in any way dependent upon or governed by the same rule as the other forms of restraint of trade and, later, that there can be no question of public policy involved in such a covenant as that entered into by a purchaser restraining him from carrying on his trade on a piece of ground which he has newly acquired.

My Lords,

I do not think it is possible to accept this general proposition. All dealings with land are not in the same category ; the purchaser of land who promises not to deal with the land he buys in a particular way is not derogating from any right he has, but is acquiring a new right by virtue of his purchase. The same consideration may apply to a lessee who accepts restraints upon his use of land ; on the other hand, if you subject yourself to restrictions as to the use to be made of your own land so that you can no longer do what you were doing before, you are restraining trade and there is no reason why the doctrine should not apply.

It is difficult to devise a formula relating to land which covers all cases in which the doctrine should be excluded. Counsel for the Respondents submitted that the solution might be that the doctrine only applied to covenants for the benefit of the trade of the covenantee which either forbids the covenantor to carry on his trade or restricts the manner in which he does so. This solution serves the property cases to which I have referred where restrictive covenants are given to protect property not trade but, as was pointed out in argument, does itself lead to anomalies in practice as between one property and another.

One has to remember always what is meant by restraint of trade and whence this doctrine derives. It has been said to have its origin in Magna Carta, where words are to be found wide enough to extend to freedom of trade :

31739 A 8

" Nullus liber homo etc. disseietur de libero tenemento vel libertatibus. " vel liberis consuetudinibus suis etc."

These words are quoted by Lord Macclesfield in Mitchel v. Reynolds 1 Peere Williams (1711) 181 at page 188. He ended his judgment by saying: —

" To conclude: In all restraints of trade, where nothing more appears, " the law presumes them bad; but if the circumstances are set forth, " that presumption is excluded, and the Court is to judge of those " circumstances, and determine accordingly ; and if upon them it appears " to be a just and honest contract, it ought to be maintained."

This introduced the conception of reasonableness. Lord Macclesfield had already drawn the distinction between contracts made upon good considera- tion and those which were merely injurious and oppressive.

Before turning to reasonableness, however, I would adopt the language of Diplock, L.J. in the Petrofina case

[1966] Ch. 146

at page 180 where he said:

" 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 parties not parties " to the contract as he chooses."

The learned Lord Justice was adapting his definition from the opinion of Lord Parker of Waddington in Attorney-General of the Commonwealth of Australia v. The Adelaide Steamship Co.

[1913] AC 781

, 793. He summarised the principle thus:--

" At common law every member of the community is entitled to carry " on any trade or business he chooses and in such manner as he thinks " most desirable in his own interests, and ... no one can lawfully " interfere with another in the free exercise of his trade or business " unless there exist some just cause for such interference."

When one remembers that the basis of the doctrine of restraint of trade is the protection of the public interest, it is not difficult to see how the law developed in its conception of reasonableness as the test which must be passed in order to save a contract in restraint of trade from unenforceability.

The law has developed since the days of Mitchel v. Reynolds, and many disputatious matters have been cleared up. For example, as Lord Mac- naghten pointed out in Nordenfelt v. Maxim Nordenfelt Guns and Ammuni- tion Company

[1894] AC 535

at page 565, adequate consideration was formerly thought to be essential. He said:

" It was laid down in Mitchel v. Reynolds that the Court was to see " that the restriction was made upon a good and adequate considera- " tion, so as to be a proper and useful contract. But in lime it was found " that the parties themselves were better judges of that matter than the " Court, and it was held to be sufficient if there was legal consideration " of value, though of course the quantum of consideration may enter " into the question of the reasonableness of the contract."

Thus, a restriction as to time may be reasonable or unreasonable according as to whether sufficient compensation has been given to the person restrained. The distinction between partial and general restraint is no longer alive and the courts are to-day left, I think, in the position described by Lord Macnaghten earlier on the same page, where he said:

" The true view at the present time, I think, is this: The public have " an interest in every person's carrying on his trade freely: so has the " individual. All interference with individual liberty of action in trading, " and all restraints of trade of themselves, if there is nothing more, 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 cir- " cumstances 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 con- " cerned 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."

What Lord Parker of Waddington said in the Adelaide Steamship Co. case follows naturally from this passage which puts into prominence the interests of the public. These are mentioned before those of the individual. True it is that the interests of the individual are much discussed in the cases on restraint of trade, which seldom, if ever, have been expressly decided on public grounds. An interesting example of such a case is Kores Manufacturing Company Limited v. Kolak Manufacturing Company Limited

[1959] 1 Ch. 108

in which the discussion turned on whether or not the agreement in question was reasonable as between the parties whereas it could have been, perhaps, more readily based on the public interest involved in a commercial dispute. I should add that it has been established that a covenant against competition per se will never be regarded as reasonable (see the speech of Lord Birkenhead L.C. in the McEllistrim case (supra)).

It has been authoritatively said that the onus of establishing that an agreement is reasonable as between the parties is upon the person who puts forward the agreement while the onus of establishing that it is contrary to the public interest, being reasonable between the parties, is on the person so alleging: see Herbert Morris Limited v. Saxelby [1916] A.C. 688, at pages 700 and 707 and 708 per Lord Atkinson and Lord Parker. The reason for the distinction may be obscure, but it will seldom arise since once the agreement is before the court it is open to the scrutiny of the court in all its surrounding circumstances as a question of law.

Having rejected, as I do, the argument that there is a special class of contract relating to land which is outside the scope of the doctrine of restraint of trade, I come now to the question whether the covenants in question here are reasonable either in the private interests of the contracting parties or in the public interest. There might be thought to be some risk of proceedings being taken in certain cases of a nuisance character where the restraint of trade is readily justifiable on the basis of long established practice in a particular sphere, such as the brewery cases upon which the Appellants rely, but I cannot see any practical way of hedging about the right of a party to a contract to attack it on the ground that it has been entered into in unreasonable restraint of trade. After all, a man who freely enters into a bargain will, normally, expect to be held bound by it, and I do not anticipate a spate of litigation in which contracts of, say, " sole agency " will be assailed. In the case of agreements between commercial companies for regulating their trade relations the parties are usually the best judges of what is reasonable. In such a case, as Lord Haldane said in North Western Salt Company Limited v. Electrolytic Alkali Company Limited

[1914] AC 461

at 471, "the law still looks carefully to the " interests of the public, but it regards the parties as the best judges of what " is reasonable as between themselves."

My Lords,

so far as the tie in the Mustow Green Garage is concerned, I am in agreement with the judgments given in the Court of Appeal, that the vital question is whether the length of the period for which the agreement is to last is unreasonable. There is a need for the protection of continuity of outlets for the company's petrol in the area in which the station is. This is a justification of the tying covenant to which the compulsory trading and the continuity covenants are complementary, as Diplock, L.J. pointed out. Without them the tying covenant would be insufficient for its purpose. They, therefore, stand together. I should add that I reject the argument of the Appellants that the " keep open " clause in the agreement falls short of a compulsory trading clause.

I have, however, reached the conclusion that the five-year tie is not unreasonable. It is true that there does not appear to have been evidence specifically directed to this question, but I have been influenced by the number of reported cases of like nature to these, particularly from Common- wealth courts, when five years has been considered reasonable ; compare also Biggs v. Hoddinott

[1898] 2 Ch 307

, where a five-year tie was con- tained in a mortgage deed. The recommendation of the Monopolies

Commission, ordered to be printed on the 28th July, 1965, was that solus agreements should not normally exceed five years. Harman, L.J. pointed out that the period of four years and five months in Action 259 was reached, as it were, by accident without the parties directing their minds to the reasonableness of the period, but I am not deterred by that feature of the case from reaching the conclusion that the period chosen, being less than five years, is not unreasonable. I would, therefore, reverse the order of the Court of Appeal so far as the Mustow Green Garage is concerned.

In the Corner Garage there was not only a solus agreement but also a mortgage as security for a loan granted by the Appellants to the Respon- dents. The mortgage was irredeemable for 21 years and was part and parcel of the tying agreement and the compulsory trading agreement, so that unless ties contained in a mortgage are outside the doctrine of restraint of trade the period of 21 years is so long as to be unreasonable in the absence of evidence to justify it. I see no reason why a tie in a mortgage is to be treated in a special way. The point was considered in Horwood v. Millars Timber & Trading Co. Ltd. [1917] 1 K.B. 305, although this was not a case of mortgage of land, and the court held that a covenant in restraint of trade contained in a mortgage deed was bad. Reliance was placed on Knightsbridge Estates Trust Ltd. v. Bryne

[1939] Ch. 441

and page 457 for the proposition of Sir Wilfred Greene, M.R., that " equity does " not reform mortgage transactions because they are unreasonable. It is " concerned to see ... that oppressive or unconscionable terms are not "enforced ". The Master of the Rolls was not dealing with covenants in restraint of trade. These must be tested by the same criterion, whether they are contained in mortgages or not, unless there is some exception in relation to land. I have already expressed the view that there is no such exception. I agree, therefore, with the opinion of the Court of Appeal that the tying covenant and the compulsory trading covenant are unenforceable. These are so closely linked with the provision that the mortgage is to be irredeem- able for 21 years that I would hold that they all fall together so that the Respondents are entitled to redeem. Finally, I should add that I do not accept the special argument based on section 85 of the Law of Property Act, 1925, which is based on the conception that under the Act, for conveyancing purposes, a mortgage is treated as if it were a lease.

I would rest my decision on the public interest rather than on that of the parties, public interest being a surer foundation than the interest of private persons or corporations when widespread commercial activities such as these are concerned.

So far as the Corner Garage is concerned I would affirm the order of the Court of Appeal.

Lord Pearce

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, I am of opinion that it is reasonable.

The period of five years has been approved as a reasonable period for agree- ments of this nature in Canada (British American Oil Co. v. Hery, 1941 4 D.L.R. 725 ; McColl v. Avery, 1928 34 Ontario Weekly Notes 275 ; Great Eastern Oil v. Chafe [1956] 4 W.L.R. 2nd Series 310) and in South Africa (Shell Company of South Africa Ltd. v. Gerran's Garages Ltd., 1954 4 S.A.R. 752). 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. In some cases the matter has passed subsilentio. And although the point was not relevant in Strick v. Regent Oil (

[1966] AC 295

) the language there used (per Lord Reid at 324D and Lord Upjohn at 345E) seems to suggest that, had the question been raised or relevant, five years would not

have been considered unreasonable. So, too, in the cases of Mobil Oil Australia, Ltd. v. Commissioner of Taxation of the Commonwealth of Australia (

[1966] AC 275

at 293A) and B.P. Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia ([1966] A.C. 244 at 265C and 267E). The facts set out in the report of the Monopolies Commission and its conclusions support this view.

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 improve- ment 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 not 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 embarrass- ment to the trade and would not safeguard any public or private interest that needs protection. I would, however, 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 con- tracts 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 com- merce 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

[1894] AC 535

at 574). 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 wide- spread, are in fact a danger and disservice to the public and to traders, the court should hesitate to interfere.

The onus is on the party asserting the contract to show the reasonable- ness of the restraint. That rule was laid down in the Nordenfelt case (supra) and in Herbert Morris Ltd. v. Saxelby ([1916] A.C. 688).

When the court sees its way clearly, no question of onus arises. In a doubtful case where the court does not see its way clearly and the question of onus does arise, there may be a danger in preferring the guidance of a general rule, founded on grounds of public policy many generations ago, to the guidance given by free and competent parties contracting at arm's length in the management of their own affairs. Therefore, when free and competent parties agree and the back- ground provides some commercial justification on both sides for their

bargain, and there is no injury to the community, I think that the onus should be easily discharged. Public policy, like other unruly horses, is apt to change its stance; and public policy is the ultimate basis of the courts' reluctance to enforce restraints. Although the decided cases are almost invariably based on unreasonableness between the parties, it is ultimately on the ground of public policy that the court will decline to enforce a restraint as being unreasonable between the parties. And a doctrine based on the general commercial good must always bear in mind the changing face of commerce. There is not, as some cases seem to suggest, a separation between what is reasonable on grounds of public policy and what is reason- able as between the parties. There is one broad question: is it in the interests of the community that this restraint should, as between the parties, be held to be reasonable and enforceable?

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 particu- lar 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 with- holding 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 bar- gain is reasonable and will decline to enforce it if it is not. The famous passages from the opinion of Lord Macnaghten in the Nordenfelt case (supra) and the opinion of Lord Parker of Waddington in the Adelaide Steamship Case

[1913] AC 781

at 793 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 others. But so wide a power of potential investigation would allow to would-be recalcitrants a wide field of chicanery and delaying tactics in the courts. Where, then, should one draw the line?

It seems clear that covenants restraining the use of the land imposed as a condition of any sale or lease to the covenantor (or his successors) should not be unenforceable. It would be intolerable if, when a man chooses of his own free will to buy, or take a tenancy of, land which is made subject to a tie (doing so on terms more favourable to himself owing to the existence of the tie) he can then repudiate the tie while retaining the benefit. I do not accept Mr. Templeman's argument that such transactions are subject to the doctrine, but will never as a matter of fact be held unreasonable. In my view, they are not subject to the doctrine at all. Certainly public policy gives little justification for their subjection to it. This view would accord with the brewers' cases in which (after an earlier unfavourable protest by Lord Ellenborough, C.J. in Cooper v. Twibill 3 Camp. 286 at 287) the law has, for many years past, been firmly settled in allowing covenants tying the publican (as lessee or purchaser) to a particular brewer (e.g. Clegg v. Hands 44 C.D. 503). In one case, however, in 1869 (Catt v. Tourle 4 Ch. App. 654) a perpetual tie on a sale of land was subjected to scrutiny and was held to be reasonable. But to allow a permanent tie is not very different from holding it exempt from scrutiny.

It may be, however, that when a man fetters with a restraint of land which he already owns or occupies, the fetter comes within the scrutiny of the court.

Is one also to place mortgages in the class of cases from which the doctrine is excluded? Mr. Megarry for the Appellants relies inter alia on the tech- nical argument that under the mortgage he has in law a demise of 3,000

years with cesser on redemption; that this should not be regarded as a mere notional technicality; that he is a lessee for all purposes (see Regent Oil Co. Ltd. v. Gregory

[1966] Ch. 402

); that the mortgagor is a lessor in pos- session ; and that, therefore, the covenant should bind him as on a lease, 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.

Then, on broader grounds, does the mere fact that a restraint is embodied as an obligation under a mortgage exclude it from critical scrutiny and prevent its being unenforceable if it would have been so apart from the mortgage? I think not. In Biggs v. Hoddinott

[1898] 2 Ch 307

the point was not raised and the case is, therefore, of little guidance. The court of equity which declines to enforce the terms of a mortgage, if as a matter of conscience they are harsh and oppressive, cannot be less conscientious with regard to ties which as a matter of public policy the common law courts from earliest times, and thereafter courts of equity, have consistently refused to enforce in contracts. And the court has rightly applied the doctrine against restraint of trade to a tyrannous mortgage of future earnings in Norwood v. Millar's Timber & Trading Co. Ltd. [1917] 1 K.B. 305.

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, there- fore, there had been in the mortgage of the Corner House Garage a right to redeem either when the mortgagor wished or at any time after a reason- able 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 mort- gage 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. I feel the force of his reasoning, but I do not feel able to accede to it. Had the garage proprietor had no obligations to carry on his garage I might have been persuaded otherwise. But here there was a positive obligation to carry on the business (or to find a transferee who must do likewise) and to purchase from none save Esso. The practical effect was to create a personal restraint. Although the covenant affected only petrol sold on the particular land it did affect the proprietor with an obliga- tion which he or his agents could not by mere abstention avoid. Both the English Hop Growers' case ([1928] 2 K.B. 174) and Foley & Classique Coaches ([1934] 2 K.B. 1) in both of which the restraint was regarded as reasonable and McEllistrim's case, ([1919] A.C. 540) where it was not, lend some support to this view.

Finally, there is the important question whether this was a mere agree- ment 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 the doctrine. The present case seems near the borderline, as was the case of Servais Bouchard v. Prince's Hall Restaurant 20 T.L.R. 574, where the learned Master of the Rolls held that the doctrine did not apply while the other two Lords Justice apparently held that it did apply but that the restraint was reasonable.

One of the mischiefs at which the doctrine was aimed originally was the mischief of monopolies. But this was dealt with by legislation and the execu- tive has from time to time taken efficient steps to prevent it. Indeed, in the case of petrol ties there has now been exacted (we are told) from the petrol producers an undertaking which in practice limits these ties to five years.

When Lord Macnaghten said in the Nordenfelt case (supra), at page 564 that " in the age of Queen Elizabeth all restraints of trade whatever they " were, general or partial, were thought to be contrary to public policy and " therefore void " he was clearly not intending the words " restraints of trade " to cover any contract whose terms, by absorbing a man's services or custom or output, in fact prevented him from trading with others; so, too, the wide remarks of Lord Parker of Waddington in the Adelaide case (supra) at page 794. It was the sterilising of a man's capacity for work and not its absorption that underlay the objection to restraint of trade. This is the rationale of Young v. Timmins 148 E.R. 1446 where a brass foundry was during the contract sterilised so that it could only work for a party who might choose not to absorb its output at all but to go to other foundries, with the result that the foundry was completely at the mercy of the other party and might remain idle and unsupported.

The doctrine does not apply to ordinary commercial contracts for the regulation and promotion of trade during the existence of the contract, pro- vided that any prevention of work outside the contract viewed as a whole is directed towards the absorption of the parties' services and not their sterilisation. Sole agencies are a normal and necessary incident of commerce and those who desire the benefits of a sole agency must deny themselves the opportunities of other agencies. So, too, in the case of a film-star who may tie herself to a company in order to obtain from them the benefits of stardom (Gaumont British Picture Corporation Ltd. v. Alexander [1936] 2 A.E.R. 1686). See, too, Warner Brothers Pictures Incorporated v. Nelson [1931] K.B. 209). And partners habitually fetter themselves to one another.

When a contract only ties the parties during the continuance of the con- tract, 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 reason- ableness 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. Timmins comes into play and the question whether it is reasonable arises.

The difficult question in this case, as in the case of Servais Bouchard, is whether a contract regulating commercial dealings between the parties has by its restraints exceeded the normal negative ties incidental to a positive commercial transaction and has thus brought itself within the sphere to which the doctrine of restraint applies. If Esso had assured to the garage proprietor a supply of petrol at a reasonable price, come what may, in return for the garage proprietor selling only Esso petrol, it might be that the con- tract would have come within the normal incidents of a commercial transac- tion and not within the ambit of restraint of trade. But Esso did not do this. They hedged their liability around so that they had an absolute discretion

in the event inter alia of a failure in their own sources of supply, whether or not Esso should have foreseen it, to withhold supplies from the garage pro- prietor (leaving him the cheerless right in such a situation to seek supplies elsewhere); and then at a later stage it would seem, if and when they were prepared to supply him once more, they could hold him to his tie with them. And the price was to be fixed by Esso. And for the duration of the contract he owed them a contractual obligation to continue to keep his garage open (or find a successor who would do so on like terms). When these contracts are viewed as a whole the balance tilts in favour of regarding them as contracts which are in restraint of trade and which, therefore, can only be

enforced if the restraint is reasonable.

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 com- petition rather than encourage it if Esso were prevented from being able to enter into a binding solus agreement for a so'e 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 circum- stances 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

My Lords,

The main features in the solus agreements entered into by the Respondent Company with Esso are that the Respondent agreed to purchase from Esso the whole of its requirements of motor fuel for resale at the relevant service stations, accepted a resale price maintenance clause, agreed to operate the relevant service stations in accordance with the Esso Dealer co-operation plan which included a provision that the service station should be kept open at all reasonable hours for the sale of Esso petrol and oil and, lastly, agreed that, before completing any sale or transfer of the relevant service station, the Respondent would notify Esso and procure the intended successor to assume the Respondent's obligations under the agreement.

In the case of the Mustow Green Garage, the agreement, dated 27th June, 1963, was expressed to operate for four years and five months from 1st July, 1963, this being the residue of a longer period which was taken over by the Respondent from a previous operator of the station.

In the case of the Corner Garage at Stourport-on-Severn the agreement, dated 5th July, 1962, was expressed to operate for 21 years from 1st July, 1962. In addition to this solus agreement, the Respondent entered into a mortgage of this station, dated 6th October, 1962, by which the station was charged to Esso to secure a sum not exceeding £7,000 with interest. The principal sum was repayab'e—and only repayable—by instalments over 21 years from 6th November, 1962. There were certain special provisions in the mortgage deed which I need not specify at the present stage.

The first main issue is whether these agreements are to be regarded as agreements in restraint of trade so as to be exposed to the tests of reasonable- ness stated in the Nordenfelt case. It is the Appellant's contention that they

are not, mainly on the ground that they relate to the use of the Respondent's land, and that covenants, or contracts, which so relate are by their nature incapable of being regarded as in restraint of trade. This contention has made it necessary to consider how a covenant or contract in restraint of trade is to be defined or identified.

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 [1894] A.C. page 565 and of Lord Parker of Waddington in Adelaide [1913] A.C. 793-7, adapted and used by Diplock L.J. in the Court of Appeal in the Petrofina case

[1966] Ch. 146

, 180, speak generally of all restraints of trade without any attempt at a definition. Often we find the words " restraint of trade " in a 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. A well-known text book describes contracts in restraint of trade as those which " unreasonably restrict" the rights of a person to carry on his trade or profession. There is no need to regret these tendencies: indeed, to do so, when consideration of this subject has passed through such notable minds from Lord Macclesfield onwards, would indicate a failure to understand its nature. The common law has often (if sometimes unconsciously) thrived on ambiguity and it would be mistaken, even if it were possible, to try to crystallise the rules of this, or any, aspect of public policy into neat propositions. The doctrine of restraint of trade is one to be applied to factual situations with a broad and flexible rule of reason.

The use of this expression justifies re-statement of its classic exposition by Chief Justice White in the Standard Oil Case (U.S. v. Standard Oil (1911) 221 U.S.(1)). Speaking of the statutory words "every contract in restraint of "trade", (Sherman Act 1890), admittedly taken from the common law, almost contemporaneous with Lord Macnaghten's formula and just as wide, he said:

" As the acts which may come under the classes stated in the first " section and the restraint of trade to which that section applies are not " specifically enumerated or defined, it is obvious that judgment must " in every case be called into play in order to determine whether a " particular act is embraced within the statutory classes, and whether " if the act is within such classes its nature or effect causes it to be a " restraint of trade within the intendment of the Act . . ." (ibid page 63).

And he goes on to say that to hold to the contrary would involve either holding that the statute would be destructive of all right to contract or agree or combine in any respect whatsoever, or that, the " light of reason " being excluded, enforcement of the statute was impossible because of its Uncertainty. The right course was to leave it to be determined by the light of reason whether any particular act or contract was within the con- templation of the statute. One still finds much enlightenment in these words.

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.

How, then, can such contracts be defined or at least identified? No exhaustive test can be stated—probably no precise non-exhaustive test. But the development of the law does seem to show that judges have been able to dispense from the necessity of justification under a public policy test of reasonableness such contracts or provisions of contracts as, under contemporary conditions, may be found to have passed into the accepted and normal currency of commercial or contractual or conveyancing relations. That such contracts have done so may be taken to show with at least strong prima force that, moulded under the pressures of negotiation, competition and public opinion, they have assumed a form which satisfies the test of public policy as understood by the courts at the time, or, regarding the matter from the point of view of the trade, that the trade in question has assumed such a form that for its health or expansion it requires a degree of regulation. Absolute exemption for restriction or regulation is never obtained: circumstances, social or economic, may have altered, since they obtained acceptance, in such a way as to call for a fresh examination: there may be some exorbitance or special feature in the individual contract which takes it out of the accepted category: but the court must be persuaded of this before it calls upon the relevant party to justify a contract of this kind.

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 sense.

Any attempt to trace historically the development of the common law attitude towards " restraints " of different kinds would be out of place here, and generalisations as to it are hazardous. But a few examples of com- paratively modern origin show how some such rule of action, however imperfectly I have expressed it in words, has been operated. In some cases the process can be seen whereby a type of contract, initially regarded with suspicion, has later come to be accepted as not, or no longer, calling for justification.

First, there are the brewery cases. Contractual clauses tying a leased public house to the lessor's beers have been known, and commonly current, at least since the early 19th century (for an early case see Hartley v. Penall (1792) Peake 178). In the form which they then assumed (commonly providing that if the tying covenant was broken there should be an increased rent recoverable by distress) we find them encountering some judicial criticism (Cooper v. Twibill (1808) 3 Camp. 286 (n) per Lord Ellenborough, C.J.). But by 1850 they had become current; the attrition of negotiation and competition may be taken to have worn them down to an acceptable shape and in Can v. Tourle (1859) L.R. 4 Ch. 654 the Court of Appeal in Chancery not only accepted that such covenants were outside the doctrine of restraint of trade, but were prepared to extend the exclusion to the case where the servient house was sold instead of leased. I quote Selwyn, L.J.'s words: —

" With respect to this particular covenant, it seems to me that the " Court cannot but take judicial notice of its being extremely common. " Every Court of justice has had occasion to consider these brewers' " covenants, and must be taken to be cognisant of the distinction between " what are called free public houses and brewers' public houses which

" are subject to this very covenant. We should be introducing very " great uncertainty into a very large and important trade if we were " now to suggest any doubt as to the validity of a covenant as extremely " common as this is." (I.c. page 659) and

Giffard, L.J. added " it does not go beyond the ordinary brewers' covenant" (ib. page 662). Neither of the Lords Justices, it will be seen, puts his decision upon the ground (simple and decisive if he had thought it appropriate) either that the covenant related to the use to be made of land, or that it was imposed on a disposition of land. That it was too late to subject such tying covenants to the test appropriate in restraint of trade was stated in 1889 by Bristowe, V.C. (Clegg v. Hands 44 Ch. D. 503), and the issue was not even debated in the Court of Appeal.

The working of the same principle can be seen even earlier in relation to covenants restricting trade in leases generally. In the normal exploitation of property, covenants are entered into, by lessee or lessor, not to trade at all or not to carry on particular trades. In 1614 (Rogers v. Parry 2 Bulst. 136) the issue, whether a covenant in a lease for 21 years not to exercise a particular trade was in restraint of trade, was still susceptible of debate, but Coke C.J. and the judges of the King's Bench upheld its validity. By 1689 this seems to have become accepted doctrine, for in Thompson v. Harvey (Comb. 121) Holt C.J. was able to say "it was usual to restrain a lessee " from such a trade in the house let" giving as the reason " because I will " choose whether to let or not". (cf. in relation to chattels, United Shoe Machinery Co. of Canada v. Brunei

[1909] AC 330

, 343).

The same has come to be true of dispositions of the freehold: for over 100 years it has been part of the normal technique of conveyancing to impose and to accept covenants restricting the use of land, including the use for trades or for trade generally, whether of that conveyed or of that retained. A modern example of this is Newton Abbott Cooperative Society v. William- son & Tread gold Ltd.

[1952] 2 Ch. 286

One may express the exemption of these transactions from the doctrine of restraint of trade in terms of saying that they merely take land out of commerce and do not fetter the liberty to trade of individuals; but I think one can only truly explain them by saying that they have become part of the accepted machinery of a type of transaction which are generally found acceptable and necessary, so that instead of being regarded as restrictive they are accepted as part of the structure of a trading society. If in any individual case one finds a deviation from accepted standards, some greater restriction of an individual's right to " trade ", or some artificial use of an accepted legal technique, it is right that this should be examined in the light of public policy. An example of this process in a lease (a lessor's covenant as to trading) may be found in Hinde v. Gray (1840) 1 M & Gr. 195, and, in a conveyance, in the Scottish case of Aberdeen Varieties Ltd. v. Donald [1939] S.C. 788.

Then there is the well known type of case where a man sells his business and its goodwill and accepts a limitation on his right to compete. Here too we can see the period of scrutiny in the 17th century. That, on the sale of the goodwill of a business, a promise might validly be given not to carry on the relevant trade was established, after debate, in Broad v. Jolliffe (1620) Cro. Jac. 596—the covenant held void—reversed in the King's Bench 2 Roll. Rep. 203, where Dodderidge J. said that it was the usual course of men in their old age to turn over their trade to another; general recognition was given to this type of covenant by Lord Macclesfield in Mitchel v. Reynolds (1711) 1. P. Wms. 181, 191. So the rule has become accepted that, in the interest of trade itself, restrictions may be imposed on the vendor of good- will provided that they are fairly and properly ancillary to the sale: if they exceed this limit the " doctrine " may be applied (see Leather Cloth Co. v. Lorsont (1869) L.R. 9 Eq. 345 where James V-C. excepted "natural" covenants from the "doctrine").

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. So. in Servais Bouchard v. Princes Hall Restaur- ant Ltd. (1904) 20 T.L.R. 574, the contract was for exclusive purchase of burgundy for the defendant's restaurant for an indefinite period. The judgments of the Lords Justices are based on different grounds and it was held, in any event, that the covenant was reasonable; but the judgment of Collins M.R. is instructive. He thought that the case did not come within the principle by which restraints of trade were held to be invalid as being contrary to public policy. Contracts of the same class as that now in question viz. contracts by which persons bound themselves for good consideration to supply their customers with goods obtained from a particular merchant exclusively, were for the benefit of the community. There was need for contracts of this kind and the Court must have regard to the fact that con- tracts for sole agency were matters of every day occurrence (see too W. T. Lamb & Sons v. Goring Brick Co. Ltd [1932] 1 K.B. 710 where the agree- ment was not challenged: British Oxygen Co. v. Liquid Air Co.

[1925] Ch. 383

, 392: in the Adelaide case an agreement for exclusive purchase of a more comprehensively restrictive character was held to be in restraint of trade

[1913] AC 781

, 806-8).

Lastly (though this is still an uncertain field) certain contracts of employ- ment, with restrictions appropriate to their character, against undertaking other work during their currency may be acceptable (cf. Warner Pictures Inc. v. Nelson [1937] 1 K.B. 209; Gaumont British Picture Corporation v. Alexander [1936] 2 A.E.R. 1686). But here too if it is found that the restric- tion is purely limitative or sterilising, it may be subject to examination (see Gaumont British Picture Corporation v. Alexander u.s. page 1692 per Porter J. and compare the facts in Young v. Timmins (1831) 1 Cr. & J. 331: the decision was mainly based on inadequacy of consideration).

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, segments of current and recognisably normal contracts which are not currently liable to be subjected to the necessity of justification by reasonableness. Such contracts may even be listed, provisionally, in categories (see Gare, The Law Relating to Covenants in Restraint of Trade (1935) ; Cheshire & Fifoot, Law of Contract 6th Ed. (1964) pp. 324, 329 ff.) but the classification must remain fluid and the categories can never be closed.

I turn now to the agreements. In my opinion, on balance, they enter into the category of agreements in restraint of trade which require justification. They directly bear upon, and in some measure restrain, the exercise of the Respondent's trade, so the question is whether they are to be treated as falling within some category excluded from the " doctrine " of restraint of trade. The broad test, or rather approach, which I have suggested, is capable of answering this. This is not a mere transaction in property, nor a mere trans- action between owners of property : it is essentially a trade agreement between traders. It is not a mere agreement for exclusive purchase of a commodity, though it contains this element: if it were nothing more, there would be a strong case for treating it as a normal commercial agreement of an accepted type. But there are other restrictive elements. There is the tie for a fixed period with no provision for determination by notice: a combination which McEllistrim's case shows should be considered together ([1919] A.C. 565): and there is the fetter on the terms on which the station may be sold. Admittedly Harpers could liberate themselves by finding a successor willing to take their place : admittedly, too, being a limited company, they could trade in several places simultaneously, so that even if they remained tied to these sites, and obliged to continue trading there, they could in theory set up business elsewhere. But just as in McEllistrim's case (u.s.) the reality of the covenantor's restraint was considered more relevant than his theoretical liberty to depart, so here, in my opinion, addition of all the ingredients takes the case into the category of those which require justification. Finally the agreement is not of a character which, by the pressure of negotiation and competition, has passed into acceptance or into a balance of interest between

the parties or between the parties and their customers; the solus system is both too recent and too variable for this to be said.

The test, suggested by the Appellants, seems, my comparison, artificial and unreal. The covenant, they say, is not in restraint of trade because is 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 a 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 case ([1919] A.C. page 548) this 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 v. Dering [1928] 1 K.B. 174 was another instance of co-operative selling. It is one of those cases to which I have referred in which the decision was a compound one— that the agreement was not in unreasonable restraint of trade. It being apparent that the agreement was both of a normal type (according to Romer, J., similar agreements were entered into by 95 per cent, of the hop growers) and Inter partes reasonable, it is natural enough that the members of the Court of Appeal based their judgments in different degrees on both these factors. Again one may add that the case lends no support to the Appellants' suggestion that the decision was based on the personal character of the agreement or that it would have been any different, or differently expressed, had the agreement related more specifically to the Respondent's land. Then there is Servais Bouchard v. Princes Hall Restaurant Ltd. (u.s.): I have already referred to this case; I 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.

Lastly there is Foley v. Classique Coaches [1934] 2 K.B. 1 where on a sale of land the purchaser agreed to take all the petrol he needed for his coaching business from the vendor. Scrutton, L.J. (page 11), with whom the other Lords Justices agreed, described the contract as an ordinary one to purchase petrol from a particular person and held there was no " undue restraint of " trade ", a compound finding, but the ordinary commercial character of the agreement was clearly a strand in it. The fact that the agreement related (as it plainly did) to the use of the defendant's land played no part in the decision.

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. I would only add 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 year's 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 ques- tions can, in my 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 Harpers to it in the way that Harpers is bound for the period of the tie; or whether, in the public interest of preserving liberty of action to Harpers 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 Harpers, no public policy objection existed against holding them so long bound. On this point it is I think legitimate to draw support from a number of decisions in various jurisdictions where restrictions of various kinds, over com- parable periods, have been upheld: (see British American Co. v. Hery (5 years) 1941 4 D.L.R. 725; Peters American Delicacy Co. Ltd. v. Patricia's Chocolates & Candies Property Ltd. (3 years) 1947, 77 C.L.R. 574; Ampol Petroleum v. Mutton (3 years) 1952, 53 S.R. N.S.W. 1 ; Shell (S.A.) v. Gerrans Garage (5 years) 1954, 3 S.A.R. 752 ; Great Eastern Oil Co. v. Chafe (5 years) 1956 4 D.L.R. 310). 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 5 years and 21 years such as, for example, existed in the Petrofina case (12 years)

(1966) Ch. 146

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 interests 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 lo the interests of the parties ; these may have been the subject of enquiry 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 Res- pondent'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 unconscionable: for this the Appellant invokes the well known judgment of Lord Greene M.R. in Knightsbridge Estates Trust Ltd. v. Byrne

[1939] Ch. 441

. Indeed the Appellant's position is even stronger, it is claimed

because the mortgage ranks as a debenture (ibid. [1940] A.C. 613) and so may legitimately be made completely irredeemable (Companies Act, 1948 sections 89, 455 (1) s.v. debenture). The steps in this argument are coherent once its foundation is made good—that mortgages as such and restrictions in them fall totally outside the ' doctrine' of restraint of trade. But is this foundation sound? I consider first the relevant authorities.

The best known of these is Biggs v. Hoddinott

[1898] 2 Ch 307

, 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 mort- gagee limited to the continuance of the security did not clog the equity of redemption (see Bradley v. Carritt

[1903] AC 253

, 267). The issue as to restraint of trade was not raised. In Morgan v. Jeffreys

[1910] 1 Ch 620

another brewery case, where the contractual right of redemption had passed, a provision against redemption before the expiry of 28 years, coupled with a tie, was held to exceed all reasonable limit, but again no question of restraint of trade was raised. Biggs v. Hoddinott was recently followed by Russell J. in Hill v. Regent Oil (reported in Estates Gazette Digest 1962 page 452) where there was a mortgage, coupled with a tie, for 20 years and it was held that this was not oppressive or unconscionable. The case again was decided purely on the classical principles of equity applicable to mortgages and the judgment makes no reference to restraint of trade. A similar decision was given in Ontario in Clark v. Supertest Petroleum Corp. (1958) 14 D.L.R. 2. 454. 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 repay- ment 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. The mere designation of a transaction as a mortgage, however true, does not ipso facto protect the entire contents of the arrangements from examination, however fettering of trade these arrangements may be. If their purpose and nature is found not to be ancillary to the lending of money upon security, as, for example, to make the lending more profitable or safer, but some quite independent purpose, they may and should be independently scrutinised. This scrutiny is called for in the present case: for it is clear, upon consideration of the mortgage both taken by itself and in its relation to the solus agreement which shortly preceded it, that so far from the tie being ancillary to a predominant transaction of lending money, the mortgage, as was the solus agreement, was entered into as part of a plan, designed by Esso, to tie the Corner Garage to its products for as long as possible. As Harman, L. J., put it, after a detailed examination of the terms of the mortgage which I forbear from repeating, " the mortgage was intended to bolster up the solus " agreement". It follows, in my opinion, that it must be judged by the test of reasonableness. If this is so, I think there can be little doubt, once a conclusion adverse to the restrictions is reached as to the solus agreement affecting the Corner Garage, that the same must follow as regards the mort- gage. I should add that the Appellant added to his main argument on this point a subsidiary contention that the stipulations in the mortgage should be regarded in the same legal light as if they had been contained in a lease. For this he referred to section 85 of the Law of Property Act 1925 and Regent Oil Co. v. Gregory

[1966] Ch. 402

. I cannot accept this esoteric argument. For if it be the case that inclusion of the relevant restrictions in a mortgage does not save them from examination, they surely cannot be saved because, for conveyancing purposes, the mortgage also bears the character of a lease. The relationship between the covenant and a lease of the garage site is too technical and notional to bring the case within the recognised

exemption which, within limits which I have earlier stated, applies to actual leases of an accepted character.

In my opinion the appeal should be allowed as regards the Mustow Green garage and the judgment and order of Mocatta J. so far restored. As regards the Corner Garage it should be dismissed.

(31739) Dd. 196965 150 2/67 PA19/St.S.