What was the main legal issue in Shell v Lostock?

Whether Shell’s actions under a solus agreement amounted to an unreasonable restraint of trade and whether the garage could seek supplies elsewhere.

Did the Court of Appeal let the garage end the solus agreement?

No. The court found no implied term allowing termination. The support-scheme discrimination clause could not be implied.

Was the agreement unreasonable at the start?

The court said it was not unreasonable at its inception. Lord Denning MR dissented on how restraint of trade applied.

Why didn’t the ‘support scheme’ help Lostock?

Their sales drop did not meet the scheme’s threshold, so the cheaper selling permission did not apply to them.

What principle should students remember from this case?

Courts avoid implying vague terms. Only necessary and clear terms are implied, even in price-war settings.

Shell U.K. Ltd. v. Lostock Garage Ltd

Shell U.K. Ltd. v. Lostock Garage Ltd. (1976)

Court of Appeal (England & Wales) 1976 Bench: Lord Denning MR (dissent), Lawton LJ, Orr LJ Citation: [1976] EWCA Civ J0630-1 Area: Restraint of Trade • Contract

Reading time: 6–8 min Author: Gulzar Hashmi India

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Quick Summary

This case is about a solus agreement between Shell and a small garage. During a price war, the garage wanted cheaper fuel from another supplier. Shell sought an injunction to stop that. The Court of Appeal said: the agreement was not unreasonable at the start; the court would not imply a vague term against “abnormal discrimination”; and the garage had no implied right to end the tie. Lord Denning MR dissented on the approach to restraint of trade.

Zero-AI, classroom-style rewrite • Easy English

Issues

Was Shell’s injunction to stop the garage buying elsewhere reasonable?
Could the court let the garage terminate the solus agreement and buy from others?

Rules

Courts may look into business conduct if discrimination makes operations impracticable, especially under restraint of trade.
Courts avoid implying terms that are vague or not necessary for the contract to work.
Only where discrimination is so strong that business cannot run, intervention is justified; otherwise, not.

Facts (Timeline)

Lostock Garage, a small four-pump station with a workshop in Northwich, Cheshire, was run by Mr. Clarke.

The garage had a long-term solus agreement with Shell for petrol supply (20 years from March 1955 to March 1975).

In 1975, a price war followed the oil crisis. Nearby, four garages within two miles cut prices.

Independents sold at about 70p/gal; Shell stations followed. Shell charged Lostock about 68p/gal but market prices were pressured.

Clarke asked Shell for help. Shell later mentioned a “support scheme” (needs a 40,000-gallon annual drop). Lostock’s drop was only ~13,000 gallons, so it did not qualify.

On 29 Jan 1976, Lostock arranged supply from Mansfield Petroleum to match local prices and regain trade (until 6 Mar 1976).

Shell sued, seeking an injunction to stop outside purchases.

Timeline visual for Shell v Lostock case events

Arguments

Appellant: Shell

Solus tie is standard and lawful; parties agreed freely.
No basis to imply a broad “no abnormal discrimination” term.
Garage cannot break the tie during the term; injunction justified.

Respondent: Lostock Garage

Shell’s pricing/support made trading impracticable during price war.
Court should imply a term to prevent abnormal discrimination.
Garage should be allowed to buy elsewhere to survive.

Judgment

The Court of Appeal rejected the use of restraint of trade to strike down the tie in this setting. The court refused to imply a term against “abnormal discrimination” because it was neither necessary nor sufficiently precise. No implied right existed for Lostock to end the solus agreement.

Note: Lord Denning MR dissented in his approach, but the majority view stood.

Judgment concept image for Shell v Lostock

Ratio

Contracts will not get vague implied terms. The test is necessity and clarity, not fairness in general.
A solus tie is not automatically an unreasonable restraint of trade if freely agreed and workable at inception.
Only extreme discrimination making business impracticable may trigger intervention—mere market pressure is not enough.

Why It Matters

The case draws a line for implied terms and shows courts’ caution in rewriting bargains during price wars. It guides fuel-supply and franchise disputes where market shocks test long-term ties.

Key Takeaways

Imply terms only if necessary for business efficacy and clearly defined.
Restraint of trade analysis looks at reasonableness, especially at the time of making the contract.
Price-war hardship alone rarely lets a party escape a supply tie.
Courts won’t convert support schemes into binding rights unless promised in clear words.

Mnemonic + 3-Step Hook

Mnemonic: SOLUS — Support is not a promise • Only necessary terms implied • Look at inception reasonableness • Unworkable only if extreme • Stay with the bargain.

Spot the solus tie and the claimed discrimination.
Test for necessity and precision of any implied term.
Assess restraint of trade at inception, not mid-crisis.

IRAC Outline

Issue

Is Shell’s injunction reasonable and can the garage end the solus tie to buy elsewhere?

Rule

Implied terms require necessity and clarity; restraint of trade judged for reasonableness, especially at inception.

Application

Support scheme threshold not met; proposed “no abnormal discrimination” term is vague; the original tie was not unreasonable when made.

Conclusion

No implied term; no right to terminate; injunction stands. Denning MR dissented.

Glossary

Solus Agreement: A tie to buy supplies from a single source only.
Restraint of Trade: Limits on business freedom; valid only if reasonable.
Implied Term: A term read into a contract by law for necessity, not convenience.

FAQs

Whether Shell could stop Lostock from buying cheaper petrol elsewhere under a long-term tie.

Because it was not necessary for the contract to work and was too vague to enforce.

No. Market hardship alone did not release Lostock from the agreed supply arrangement.

Imply terms only when necessary and clear. Check restraint of trade at the time of making the contract.

Reviewed by The Law Easy

Contract Competition Restraint of Trade

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