COMPETITION AUTHORITY

Competition Authority Decision of 19 May 1994 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No.  CA/263/92E ‑ Shell Licence

Decision No. 327

									Price   £1.30
      										£1.80 incl. postage

Competition Authority Decision of 19 May 1994 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No.  CA/263/92E ‑ Shell Licence

Decision No. 327

Introduction

1.	Notification was made to the Competition Authority with a request for a certificate, or failing the issue of a certificate, a licence, by Irish Shell Ltd on 30 September 1992 in respect of its standard licence agreement.

2.	The Authority published notice of its intention to take a favourable decision in relation to the agreement as amended in The Irish Times on 8 April 1994.  No submissions were received from interested parties.

The facts

(a)	The subject of the notification

3.	The decision concerns the standard licence agreement between Shell and the licensees at a number of Shell‑owned petrol stations.  Under the agreement, Shell appoints the licensee to be its agent to sell various goods and services on its behalf.  It makes provision for the running and maintenance of the service station, the exclusive sale of Shell petroleum products, the sale of other goods and services and the payment of commission on sales of motor fuels to the licensee, although, in certain cases, a management fee may be paid to the licensee. There are special provisions in the agreement in respect of a convenience shop on the premises, in which are sold products other than motor fuels, such as grocery goods, etc.  The two parts of the agreement are dealt with separately in this decision.

(b)	The parties involved

4.	Irish Shell has as its ultimate parents the Royal Dutch Petroleum Company as well as the Shell Transport and Trading Company Limited.  Shell is primarily involved in the marketing of motor fuels through a chain of retail outlets, most of which are owned by independent dealers, the remainder being owned by Shell.  Around 20 of its company outlets are occupied by licensees who operate the station under the notified agreement, which only came into effect after 1 October 1991.  A number of outlets which do not include a shop are operated by licensees under a different agreement, which is the subject of a separate decision.

(c)	The product and the market

5.	The product with which the main part of the notified agreement is concerned consists of motor fuels, that is petrol and diesel for use in mechanically propelled road vehicles.  The market was described in detail in the motor fuels category licence.

6.	The convenience shop primarily sells grocery goods, confectionery, newspapers, cigarettes, etc.  The market consists of all retail outlets selling goods of a similar character.

(d)	The notified agreement

(i)	Motor fuels

7.	Under the agreement, which is between Shell and the licensee, Shell licenses the person to enter and use the site and the equipment, and Shell appoints the licensee as its agent to sell motor fuel on its behalf.  The main features of the agreement in respect of motor fuels are as follows:

	The licence provides that Shell is the owner of the land and buildings (known as the 'site') (clause 2.1).  Shell has adapted the site to be used as a filling/service station (clause 2.2).  Unless otherwise agreed to in writing, Shell owns or provides the fixtures, fittings, plant and equipment which are situate on the site (clause 2.3).  The licensee may use the equipment on the site only for the purposes of the licence (clause 2.6).

	The licence shall remain in force for three years (clause 3.1).  Under the licence, Shell licenses the licensee to enter the site and use the equipment as licensee subject to the terms and conditions contained in the licence (clause 3.3).

	Shell appoints the licensee as its agent to sell motor fuel on its behalf (clause 4.5).  The licensee agrees to actively sell and promote the products (as defined in the licence) and actively render and supply the services (as defined in the licence) (clause 4.6).  The licensee shall use the equipment on the site solely for the reception, storage, sale, distribution and provision of the product and services (clause 4.7).  The licensee agrees not to sell or use the equipment for any motor fuel or petroleum product manufactured or distributed by a competitor of Shell (clause 4.8).  The licensee may use the site for the provision or sale of bulk automotive liquified petroleum gas but only on such terms and conditions consented to in writing by Shell from time to time (clause 4.9).  The licensee shall keep the site open during such minimum hours as specified from time to time by Shell (clause 5.1).  The site and equipment shall be used and operated strictly in accordance with the Operations Manual produced and amended from time to time (clause 6.1).  This Operations Manual is annexed to the licence and forms an integral part of the licence.

	Shell agrees to supply the licensee with motor fuel (clause 7.1).  The licensee shall sell motor fuel on behalf of Shell at such prices as Shell may notify to the licensee from time to time and the licensee shall set the pricing mechanisms of the several relevant dispensers on the site to record such notification (clause 7.2).  The licensee shall sell motor fuel on behalf of Shell for cash, cheque, Euroshell or payment card of those companies whose payment cards are from time to time acceptable by Shell (clause 7.3).  When any part of the motor fuel is sold by the licensee to a third party, the title to that part shall pass to the purchaser on leaving the dispenser on the site.  The title to the remaining motor fuel shall remain vested in Shell (clause 7.4).

	Shell shall pay to the licensee a commission for each litre of motor fuel sold by the licensee on the site (clause 8.10).  There are various banking arrangements relating to the prompt lodgment to a bank of the receipts of sale (clause 8.2).

	There are various operational matters relating to the level of service (clause 9.1), staff (clause 9.2) and sale of motor cars (clause 9.3).

	The licensee agrees to use such a site management system as shall be nominated from time to time by Shell (clause 10.1).  The licensee agrees to keep records (clause 10.2) and shall furnish to Shell such records on request (clause 10.3).

	Shell may require the licensee to share the use of the site and/or the equipment with any other person nominated by Shell (clause 11.3).

	No equipment shall be introduced on to the site by the licensee except with the prior consent of Shell (clause 12.7).  The licensee pays charges for all water, electricity, gas, telephone and such other services as may be used on the site (clause 12.11).

	The insurance of the site, the equipment and motor fuel against loss or damage by fire or explosion shall be for Shell (clause 13.1).  The licensee shall maintain adequate insurance against all or any risks in relation to the running of or operating of the site and equipment including but not limited to such matters as public liability and employer's liability (clause 13.2).  The insurance referred to in clause 13.2 must be with an insurance company acceptable to Shell (clause 13.3).

	The licensee shall comply with Shell's requirements in regard to intellectual property matters (clause 15.1).
	Clause 16 refers to the fact that the parties agree to notify the agreement to the Competition Authority.

	Clause 17 provides for termination of the licence.

	Part I of the Second Schedule of the licence refers to the commission or management fee to be paid to the licensee.

(ii)	Shop products and services

8.	The agreement also relates to the operation of a shop selling 'shop products' (which are defined by clause 4.2 as "Products that may from time to time be sold at filling/service stations excluding Motor Fuel, automotive lubricants and anti‑freeze") and 'Services' (which are defined by clause 4.3 as "such services as may from time to time be provided at filling/service stations including car wash and vacuum cleaning").  Under clause 8.3, the licensee agrees to pay to Shell an amount in respect of Shop Products and Services which shall be calculated in accordance with Part II of the Second Schedule to the agreement.  The agreement provides for a mechanism for calculating these payments.

Clause 9.5 states as follows:
	'The Licensee agrees that Shell reserves the right during the Term to oblige the Licensee to withdraw from the Site upon demand any Shop Products, Services or other goods, services advertisements, displays or anything whatsoever which Shell considers to be inappropriate at a filling/service station.'

Submissions by Shell

9.	Shell submitted the following arguments in support of its request for a certificate:

`The preamble to the Act clearly states that the Act is to be interpreted by analogy with Articles 85 and 86 of the Treaty of Rome.  Article 85(1) sets out the prohibition on agreements which prevent, restrict or distort competition.  It is essential under Article 85 that there are two "undertakings" acting in concert for the prohibition to operate.  "Undertaking" has been given a broad meaning covering virtually every natural or legal person engaging in economic activity.  Notices and decisions of the European Commission and decisions of the European Court of Justice indicate that the relationship of principal and agent in its normal economic context does not breach Article 85(1) as the agent is merely an auxiliary and extension of its principal and is not an undertaking, unlike an independent trader.  In Hydrotherm V Compact, the Court said:

	"In competition law the term `undertaking' must be understood as designating an economic unit ... even if in law that economic unit consists of several persons, legal or natural."

In 1962 the European Commission issued its Notice on Exclusive Dealing Contracts with Commercial Agents ("the Notice").   The purpose of the notice is to set out the circumstances where the commission considers Article 85(1) inapplicable to an agency contract.  Certain requirements must be met in order for a contract to benefit from the Notice:‑

	(i)	the commercial agent must not act as an independent trader during the course of commercial operations;

	(ii)	financial risks related to the transaction must remain with the principal;

   	(iii)	the commercial agent must not be required to keep a large stock of contract goods as its own property;

	(iv)	the commercial agent must not be required to organise, maintain or ensure at his own expense a substantial service to customers free of charge and;

	(v)	the commercial agent may not be vested with discretion to determine prices or business terms.

The over‑riding element in a positive determination of agency in the Notice is the absence of risk on the agent's part when conducting business on behalf of the principal.  The European Commission's decision in Austin Rover Group (ARG)/Unipart and Fisher‑Price/Quaker Oats ‑ Toyco illustrate the importance of this point.  However, later developments show that assumption of risk is not the only criterion to be applied in deciding whether or not Article 85(1) is applicable.  In Pittsburgh Corning Europe, the European Commission held that the use of the word "agent" is not the critical factor and that economic reality took precedence over legal form especially where the so‑called agent was not in the position of economic dependence on the other party.  In the Suiker Unie case the European Court of Justice followed this line of thinking in holding that traders who acted as agents for each other as well as principals on their own account in the same level of the sugar market could not benefit from an exemption from Article 85(1).  Similarly, in VVR the Court rejected the idea that travel agents were auxiliary organs where they transacted business for a multitude of tour operators.

The European Commission published its Preliminary draft Notice on Commercial Agency Agreements ("the draft Notice") in 1990 as a first step to amending the Notice.  Under these guidelines the mere use of the label "agent" is insufficient to judge whether an exemption should apply.  In assessing the relationship, the Commission will disregard the general financial risk resulting from the conduct of the intermediary under the agreement, e.g. responsibility for personnel or professional liability.  Instead the risks taken into account are those connected with the performance of the transactions negotiated by the intermediary in respect of the product in question.  For an exemption to apply an intermediary must not assume primary responsibility for the performance of the transactions by his principal, i.e. profit or loss resulting from the performance of these transactions must, in the first place accrue to the principal.

A genuine relationship will not exist where the intermediary determines the principal's product and marketing strategy.  Clauses obliging an agent to negotiate or conclude transactions on behalf of his principal only at prices, terms and conditions provided by the principal or subject to approval by the principal, do not restrict competition in the context of a genuine agency relationship.
The restrictions imposed by a principal on an agent can only be justified where the agent is integrated into the distribution or purchasing system of the principal.  Integration means a situation where the agent has a particularly intensive link with the principal which leads him to subordinate his interests and to dedicate his operations in the field of the product covered by the agency agreement to those of the principal and which leaves customers or suppliers with whom the agent deals not to expect autonomous commercial behaviour from the agent but to identify him with the principal.

Where the agent has interests outside the agreement with its principal which do not prevent a close identification of the agent with the principal, the concept of integration will apply. This will only occur where the outside interests are:‑

	(i)	limited, and

	(ii)	do not interfere with the subject matter of the agency agreement.

An obligation in an agency agreement on the part of the agent not to handle competing products for the duration of the agreement does not infringe Article 85(1) where it is intended to achieve integration.

It is submitted that the Licence hereby notified constitutes an agency relationship and does not offend against section 4(1) of the Act.

The only "undertaking" involved in the Arrangements within the meaning of section 4 of the Act is the Applicant as the Licensee is merely an auxiliary and does not have the status of an independent trader/undertaking.  In regard to the parallel application of the Notice to section 4 of the Act, Clauses 2.3, 4.5, 4.6, 4.7, 4.8, 5.1, 6.1 and 7.2 of the Licence prevent the Licensee from acting as an independent trader during the course of commercial operations.  Clauses 4.5, 4.6, 4.7, 4.8, 5.1 and 7.2 prevent the Licensee from acting as an independent trader during the course of commercial operations.  Clause 4.5 appoints the Licensee as the Applicant's agent to sell motor fuel on its behalf.  Clauses 4.6 and 4.7 oblige the Licensee to sell the Products and supply the services and to use the equipment solely for the reception, storage, sale, distribution and provision of the Products and services.  Clause 4.8 forbids the Licensee from selling or using the Equipment in relation to competing products.  Clause 5.1 states that the Applicant will stipulate the hours of opening of the site.  Clause 7.2 that the Licensee shall sell motor fuel on behalf of the Applicant at such prices as the Applicant may notify to the Licensee from time to time.  Clause 4.5 of the Licence by appointing the Licensee the Applicant's agent vests the financial risk for the sale of Motor Fuel in the principal vis a vis third parties.  The Licensee is only obliged to stock such amount of Motor Fuel as the storage tanks on the Site can hold.  The legal title in any of the Motor Fuel is vested in the Applicant and only passes to a customer on leaving the dispenser.  At no time does the Licensee have any interest or title to that Motor fuel (Clause 7.4), clearly showing the auxiliary nature of the Licensee.  The Licence provides that the Applicant is the owner of the Site and Equipment and accordingly the Licensee is not required to organise, maintain or ensure at its own expense a substantial service to customers free of charge.  The Licensee cannot determine the price of Motor Fuel by virtue of Clause 7.2 of the Licence.  The Licensee has no discretion to dictate the terms of sale for Motor Fuel to customers by virtue of Clauses 7.3 and 7.4.

In overall terms, the Arrangements constitute an agency agreement between two parties each in different positions in the business chain.  If the concept of agency defined in terms of economic dependence as set out in the European Court of Justice's decisions in Pittsburgh Corning and VVR is applied to section 4(1), then it is submitted that the Arrangements do not infringe the said section.

The provisions of the draft Notice, if applied in parallel to section 4(1) of the Act, contains a number of criteria for determining whether an agency agreement is genuine and outside the scope of section 4(1).

The draft Notice considers it essential for the profit or loss resulting from the performance of the transactions with customers to accrue in the first place to the principal.  The effect of Clause 8.2 of the Licence requires the proceeds of sale of Motor Fuel to be lodged to a Shell bank account.  It is only when this occurs that commission is paid to the Licensee.

The draft Notice does not envisage exemption of an agreement from the competition rules where the intermediary can determine the principal's product and marketing strategy.  Under the Licence the Applicant determines the range of products for which the Licensee acts as agent (Clauses 4.1 & 4.5) and the Applicant outlines the marketing strategy by way of the Operations Manual.

Clauses obliging an agent to negotiate or conclude transactions on behalf of its principal only at prices, terms and conditions provided by the principal and subject to approval by the principal, do not restrict competition in the context of a genuine agency relationship.  This is clearly the situation under the Licence, for example, see Clauses 7.2, 7.3 and 7.4.

Clause 4.8 of the Licence denies the Licensee the right to use the Equipment on the Site for the sale of any motor fuel or petroleum product manufactured or distributed by a competitor of the Applicant which accords with the idea of dedicating operations to the sale of one particular brand.  

Where the agent has interests outside the agreement with its principal which do not prevent a close identification of the agent with the principal, the concept of integration will apply.  However, it will only apply where the outside interests are limited and do not interfere with the subject matter of the agency agreement.  While strictly speaking the Licensee has no interest outside the Licence which would prevent a close identification with the Applicant, the Licence itself provides for the Licensee selling goods and providing services on its own account which are unconnected to the automotive fuel market (Clauses 4.2 to 4.6 inclusive).  However, this is on account of the Applicant's desire to provide a value added service to its customers at its filling stations so that not only will the customer be able to buy motor fuel but also have the opportunity and convenience of buying products that are normally sold at filling/service stations such as groceries and having their cars washed or cleaned.  This provision of the Licence is an attempt to improve and strengthen the agency business so that the Licensee will have a greater opportunity to maximise his profit and in no way detracts from the core agency business of selling automotive fuel.

For the reasons outlined above and by analogy with European Community Law, it is submitted that the Licence does not infringe section 4(1) of the Act and a Certificate ought to be granted.'

Shell also submitted arguments in support of the grant of a licence which are not relevant to this decision and are not considered here.

Subsequent developments

10.	In response to the Authority, Shell stated that a management fee was paid only when the volume of business on a site did not generate sufficient income for the Licensee/operator to pay outgoings.  This was normally done only for new sites or new Licensees so as to initially stimulate business, and there were few sites where management fees were paid.  Shell operates three stations through Donnybrook Self‑Service Ltd in order to train its staff in the management and operation of retail outlets.  Shell stated also that the Licensee was an independent undertaking in respect of the sale of goods other than petrol, and that he was free to determine the resale prices of goods sold in the shop.  Shell had never asked any Licensee to remove products.  If it were to use the power, then it would probably be for safety consideration (pending action by public authorities) or because the products were unsuitable for a filling station.

11.	The Authority wrote to Shell on 11 February 1994 expressing concern in relation to clause 9.5 which permitted Shell to oblige the licensee to withdraw from the site upon demand any shop products, etc., which Shell considered inappropriate.  It stated that its concern would be removed by the addition of the following sentence: 'This clause would only be invoked for objectively valid reasons which shall be disclosed to the licensee.'  The Authority considered that this would still adequately safeguard the legitimate interests of the company, while not impinging on the commercial freedom of the independent operator.  By letter dated 1 March 1994, Shell consented to the insertion of the addition to clause 9.5 as suggested by the Authority.

Assessment

Applicability of Section 4(1)

12.	Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State.
13.	Shell and the Licensees are engaged in the sale of motor fuels for gain, and the Licensees are also engaged in the sale of other products for gain, and they are therefore undertakings within the meaning of Section 3(1) of the Competition Act.  The Authority does not accept the argument of Shell that an agent is not an undertaking, or that there is any EC precedent for this view.  In particular, neither the 1962 Notice, nor its draft revision, states that an agent is not an undertaking, and this is not the reason for regarding an agreement between a principal and an agent as not being in breach of Article 85(1).  The position is similar to that of a parent firm and a subsidiary, where the EC Commission has held that both are undertakings, even through a restrictive agreement between them may not infringe Article 85(1).  A similar view has been taken by the Authority in its decision in AGF‑Irish Life.  The standard licensee agreement is an agreement between undertakings.  The relevant product markets are those for (a) motor fuels, and (b), the products sold in the shop on the petrol station premises.  The relevant geographic market is the State.

(i)	The status of the licensee

	(1)	In respect of the sales of motor fuels

14.	In operating the petrol station premises and selling motor fuels, the licensee is not an employee of Shell and there is no contract of employment or service between them.  He is a self‑employed contractor.  At the same time, the licensee does not purchase motor fuels from Shell for resale to the public.  Unlike the Shell independent dealer, the licensee sells motor fuel, not on his own account, but on behalf of Shell.  He does not pay for the motor fuels, and the motor fuels remain the property of Shell until they are sold at retail, even through they are held at the licensee's risk.  All receipts from the sale of motor fuels must be lodged daily to Shell's bank account.  Out of his commission, or management fee, the licensee must pay for certain outgoings, such as labour, insurance and other costs, the balance representing the licensee's remuneration.  The licensee is responsible for employing staff.  Shell determines the prices at which the motor fuels are to be sold.  The petrol station is effectively under the operational control and direction of Shell, and is operated for Shell's own account, and the licensee is obliged to obey Shells instructions and to follow the Operations Manual.  The relationship between Shell and the licensee is an ongoing one, and the agreement may have a duration of up to three years.

15.	The Authority considers that the question of agency is quite complex, and that each case must be examined on its own merits in relation to the Competition Act, in the light of certain general considerations  In the first place, it is not conclusive that one party is referred to a an `agent' in the agreement, since he may not perform the functions of an agent in any real sense.  Conversely, it does not matter if the agreement states that there is no relationship or contract of agency between the parties.  This may be done, for example, to limit one party's ability to undertake binding obligations on behalf of the other, without the latter's knowledge or consent.  From the point of view of the Competition Act, the Authority is concerned with whether the relationship between the two parties is such that one of them may be termed a `commercial agent' of the other.  It is not intended that the views of the Authority about whether a person is a commercial agent or not should have any implications for the legal relationship between the parties. 

16.	The Authority considers that a commercial agent is a self‑employed intermediary between the principal and a purchaser or seller.  The commercial agent concludes the sale or purchase of goods and services on behalf of the principal, on a continuing basis.  The commercial agent is an auxiliary organ, forming an integral part of the principal's business, and is bound to carry out the instructions of the principal, and his position is similar to that of an employee.  Being integrated into the principal's business, the commercial agent can undertake no autonomous commercial behaviour, under the agreement, and certain restrictions on him are fundamental to the relationship.  The Authority considers that profits or losses essentially accrue to the principal and not to the commercial agent.

17.	The relationship between Shell and its licensees has been summarised in para 14.  Shell has argued that, in respect of the sale of motor fuels, the licensee is an auxiliary and that the agreement does not offend against Section 4(1).

18.	The licensee is a self‑employed intermediary between Shell and the purchasers of Shell motor fuels.  He concludes the sale of goods on behalf of Shell, on a continuing basis, for up to three years.  He does not own the stocks, the resale prices are set by Shell, and the licensee lodges the proceeds of sale to the credit of Shell's bank account.  While the licensee accepts some risk, in relation to stock losses, and is responsible for hiring and paying employees, the profits and losses of the motor fuels business as a whole accrue to Shell, and the licensee must obey Shell's instructions and may undertake no autonomous behaviour in respect of the operation of the petrol station.  The Authority considers that the licensee, in operating the petrol station and selling Shell products, is an auxiliary organ, forming an integral part of Shell's distribution business, and it concludes that he can be considered to be a commercial agent.  This conclusion is not affected by the fact that the licensee also operates the shop supplied by Shell on the same premises, since the operation of the petrol station constitutes a significant proportion of the whole business, and there is also a relationship between the licensee and Shell in relation to the shop.

	(2)	In respect of the shop

19.	The licensee sells products other than motor fuels and Shell products in the shop for his own account and separately from and independently of the sale of Shell petrol products.  Although he pays a commission on sales to Shell, and is bound by certain obligations imposed by Shell regarding the operation of the shop, he is in no sense a commercial agent of Shell in respect of the shop on the petrol station premises.  He is an independent trader in the shop.

(ii)	The commercial agency agreement

20.	The Authority considers that undertakings are entitled to decide how to operate their distribution systems, and, in particular, to appoint commercial agents to sell their goods on their behalf.  Suppliers of motor fuels are free to choose to sell their products through independent dealers or through company‑owned outlets; these latter may be operated by lessees, licensees, employees or by consignees and commercial agents.  Since the commercial agent is an auxiliary organ, similar to an employee, the agreement between a principal and a commercial agent does not, in principle, offend against Section 4(1) of the Competition Act.

21.	In the present case, the Authority has concluded that the licensee is a commercial agent.  It considers that the agreement between Shell and the licensee, insofar as it creates a relationship between the principal and a commercial agent, does not offend against Section 4(1).

22.	Even though the basic arrangement of commercial agency might not offend against Section 4(1), certain clauses in the agreement might occasionally do so.  In the case of motor fuels agreements, the Authority has published a category licence, which permits the imposition of certain obligations upon resellers of motor fuels and upon their suppliers.  The Authority considers that the obligations which are not regarded as offending against Section 4(1) in the case of independent traders would equally not offend in the case of commercial agents.  More fundamentally, the Authority recognises that there are certain features of commercial agency agreements which define and confirm the relationship, and are intrinsic to the commercial agency.  Since the commercial agent is closer to being an employee than an independent trader, the Authority considers that certain restrictions may be imposed upon a commercial agent without offending against Section 4(1), whereas they would offend against Section 4(1) if they were imposed on an independent trader.  In the Authority's opinion, none of the provisions in the notified agreement relating to the sale of motor fuels offend against Section 4(1).

(iii)	The shop agreement

23.    In the opinion of the Authority, all but one of the relevant provisions regarding the shop in the notified agreement did not have the object or effect of preventing, restricting or distorting competition.  They reflect the fact that the shop is owned by Shell, and is licensed to the licensee for the purpose of enhancing earnings at the station, for the mutual benefit of the owner and the licensee, while ensuring that the reputation of the Shell brandname is not damaged.  Since a fee which is related to the turnover of different classes of goods is payable by the licensee, it is essential for accurate and detailed records to be furnished to Shell, and for Shell to have power to verify these.  Such provisions do not interfere with the freedom of the licensee to operate the shop and they do not interfere with competition.  In the view of the Authority, they do not offend against Section 4(1) of the Act.  

24.	The Authority was concerned, however, with the clause whereby Shell reserved the right to oblige the licensee to withdraw from the site upon demand any shop products, services or other goods, services advertisements, displays or anything whatsoever which Shell considered to be inappropriate at a filling/service station (Clause 9.5).  The Authority considered that this clause could be used to limit the freedom of the licensee to determine what products to sell and from whom he may obtain supplies.  This could affect the ability of the licensee to compete with other retailers in the area.  It could also limit competition between suppliers to obtain the custom of the licensee.  The licensees would have no voice in deciding which suppliers they should deal with for their purchases.  While the effect of this requirement might have little effect upon competition in the case of an individual licensee, the cumulative effect of this obligation in respect of all Shell's licensees, who are similarly bound, might not be insignificant.  Since this practice might also be followed by other petrol companies in convenience shops attached to their company and dealer outlets, and since such convenience shops are growing rapidly in number and importance, the overall effect was thought likely to be considerable.  The Authority considered that this clause offended against Section 4(1) of the Act.  (The Authority also considered that this clause would not satisfy, at least, the indispensability requirement of Section 4(2) of the Act, and so would not qualify for the grant of a licence).

25.	At the suggestion of the Authority however, as stated in para 11, Shell have agreed to provide that the obligation upon the licensee to withdraw from the site any shop products, etc. which Shell considered inappropriate 'would only be invoked for objectively valid reasons which shall be disclosed to the licensee'.  The Authority considers that this would adequately safeguard the concerns of Shell with regard to safety considerations and unsuitable products, but in a less restrictive way.  The Authority considers that the part of the agreement relating to the shop no longer offends against Section 4(1).

The Decision

26.	In the Authority's opinion, Shell and its licensees are undertakings within the meaning of Section 3(1) of the Competition Act, and the notified standard licensee agreement for the operation of a Shell‑owned petrol station and associated shop constitutes an agreement between undertakings.  In the Authority's opinion, the licensee is a commercial agent of Shell in the petrol station, and an independent operator in the shop, and the arrangements, as amended, do not have, as their object or effect, the prevention, restriction or distortion of competition.  The standard Shell licensee agreement, as amended by the letter of 1 March 1994, does not, in the Authority's opinion, offend against Section 4(1) of the Competition Act, 1991.

The Certificate

The Competition Authority has issued the following certificate:

The Competition Authority certifies that in its opinion, on the basis of the facts in its possession, the standard agreement between Irish Shell Ltd and its licensees for the operation of a Shell‑owned petrol station and shop (notification no. CA/263/92E), notified on 30 September 1992 under Section 7, and amended by Shell in its letter dated 1 March 1994, does not offend against Section 4(1) of the Competition Act, 1991.

For the Competition Authority:

Patrick M Lyons
Chairman.
19 May 1994