Competitive Advantage

You can breach a contract, save the business and keep £67,500 plus interest!

David Jamieson, his son Andrew and daughter Linda owned and managed their family business from two locations, selling liquefied petroleum gas (LPG) in cylinders to their customers.

Mr Jamieson found that his business was “territorially boxed” into an area with insufficient trade to support the business. He was concerned about the profitability of the business. Mr Jamieson terminated the exclusive distribution agreement with his LPG supplier, Calor Gas Limited (Calor) without notice and entered into a new distribution agreement with Flogas UK Limited (Flogas), a competitor of Calor.

Under the terms of the Calor distribution agreement, Mr Jamieson was not allowed to handle Calor’s cylinders after the termination of the agreement. If one of Mr. Jamieson’s customers visited his premises with an empty cylinder belonging to Calor, he was prohibited from exchanging it for a cylinder of Flogas. The prohibition had the effect of discouraging his customers from purchasing LPG from Mr. Jamieson and encouraged them to buy LPG from Mr. Jamieson’s competitors supplied by Calor. If Mr. Jamieson obeyed the terms of the Calor contract an estimated 75% of his former customers would buy LPG from his competitors; if he disobeyed the terms of the contract he would lose approximately 25% of his customers – approximately the same amount of new customers he gained each year.

Mr Jamieson disobeyed the terms of the contract and handled Calor cylinders, even after Calor brought legal proceedings against Mr Jamieson and a court granted an interim injunction ordering him not to do so.

European competition law provides that an arrangement or agreement which has the object or effect of preventing, restricting or distorting competition is prohibited and that prohibited arrangements are void and unenforceable.

Mr Jamieson argued that the parts of his agreement with Calor requiring him to buy LPG only from Calor and not to handle Calor cylinders after the termination of the Calor agreement were prohibited and void. The Court agreed with Mr. Jamieson and rejected Calor’s claim for damages and a permanent injunction preventing Mr Jamieson from handling Calor’s cylinders. Calor would have been awarded £67,500 plus interest if the relevant parts of the contract had not been void.

The case is a good illustration of how the apparently esoteric provisions of European competition law can produce real practical effects for a family business struggling to deal with a changing market. Small businesses should not only ensure that their business critical arrangements are enforceable and cannot be set aside because they breach competition law – but should also be aware that competition law can provide them with valuable assistance when faced with a changing market which threatens the viability of their business.

A PDF of this article is available for download here.

Schofield Sweeney’s Commercial and Competition Team can assist you with all aspects of commercial and competition law. Please contact Andrew Finfer at Schofield Sweeney’s Leeds office on 0113 220 6285.

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The information contained within this briefing is not intended to be a complete statement of the subject matter of the briefing. Professional advice should always be taken on the application of the law in any particular case.

30 January 2008