The object of the Bill is to confirm the Restrictive Practices (Motor Spirit and Motor Vehicle Lubricating Oil) Order, 1981 which was made on 4 March 1981.
The order gives statutory effect to recommendations made by the Restrictive Practices Commission in their Motor Spirit Enquiry Report, 1980. The report relates to the operation of the Restrictive Practices (Motor Spirit) Orders, 1961 to 1975, into any other matters germane to the operation of these orders and also into conditions which obtain in regard to the agreements under which stations which are company-owned but not company-run are operated.
The supply and distribution of motor spirit and oil have been statutorily regulated since 1961 following the first inquiry by the Fair Trade Commission into this trade. It was concerned primarily with an investigation into the solus system — the system under which a retailer agrees to deal exclusively in one brand of petrol. The commission concluded that, while the solus agreements between the wholesalers and retailers had merits, it was inclined to encourage the establishment of an excessive number of retail outlets. The 1961 order provided for the regulation of the system. Apart from a provision in an order made in 1972 to permit a solus agreement to have a term of ten years instead of five, the provisions regulating the system have been in force for 20 years and the 1981 order which we are confirming continues their operation.
Shortly after the 1961 order was made, the Fair Trade Commission and the petrol companies reached an agreement on guiding principles designed to limit the increase in the number of petrol stations, but this agreement did not work. The number of stations increased from 133 in 1960 to 394 in 1969. There was concern, not only about the increase in the number of company-owned stations but also the share of the retail market being taken by those stations. In 1970, the Minister asked the commission to inquire into this matter and an order was made in 1972 to give the backing of law to the commission's recommendation that wholesalers should be prohibited from operating company retail stations which were not previously owned by the companies. Initially, this ban was imposed for three years but it has been extended several times without modification until the order which was made in March.
During the 1980 inquiry it was submitted that the ban on new company-owned stations made it impossible for new wholesalers to set up a nucleus of retail outlets around which to develop a network of independent outlets. About 90 per cent of petrol stations are run by retailers who are not tied to petrol companies, but Senators will appreicate that few retailers would be prepared to transfer their business to a new wholesaler; the wholesaler would have to prove that he had a secure source of supply, that his service to the retailers would be adequate and that his terms and conditions of supply were likely to remain competitive. It is not intended to create problems for the existing wholesalers but it is most undesirable that there should be a closed wholesale market, not least because there is the possibility of a new wholesaler finding additional sources of supply — an important consideration in current world market conditions.
In the light of these considerations, there is a provision in the order that permits every wholesaler, existing and prospective, to have 20 company-owned retail outlets. Those who have more than 20 are free to retain them but others, including newcomers, can open up 20 or as many as they need to bring their retail outlets up to 20 in number.
Another submission at the inquiry concerned a provision in an existing order that allowed a company-owned station to be opened within three miles of a station from which traffic had been diverted by road developments or which had been compulsorily acquired. It was urged that this did not enable companies to respond to changed conditions in relation to new housing schemes, shops, factories, traffic flow and so on. This was fair criticism and the new order provides that a company may in any year open one or two new stations if they divest themselves of a like number of their existing stations. The provision about the three-mile limit is no longer relevant and it has been deleted from the order.
The provision for opening additional company-owned stations will not increase significantly the wholesalers' share of the retail market. And, of course, the opening of additional or replacement stations will require planning permission.
Another matter which arose at the inquiry, and which is of exceptional importance, relates to the short-term leases under which 234 out of 478 company-owned stations were held in 1978 — I am satisfied the figures have not changed significantly since then. These short-term leases have a term of three years or less and evidence was given about the legally weak position of the lessees in their dealings with the companies, particularly as regards security of tenure.
The companies submitted that, if they were to give longer leases, there would be undesirable consequences for them as long-term lessees could concentrate on other selling activities at the site at the expense of petrol sales because of the low margin on petrol. It was asserted that average through-put in existing long lease outlets is very much lower than in other company outlets.
While no evidence was found that, in general, the companies have treated their short-term operators other than in a reasonable and humane manner, it is clear that the lack of security of tenure of a station is likely to leave an operator more susceptible to pressure in such matters as trading hours, rents, promotional activities and so on — most of which will, or be likely to, add to selling costs without a guaranteed commensurate increase in profits.
What is provided for in the order is that all short-term operators of company stations should be the holders of licences which would run for three years with a right of renewal on fair and reasonable terms unless the company discontinue the operation of the station for a stated reason and in accordance with prescribed procedure. In general terms, the reasons for terminating a licence are: failure of the licensee to perform his statutory duties; failure to pay money due to the company; serious breach of contractual obligations; failure or inability to run the station satisfactorily; reaching an age limit set by the company; or the decision of the company to dispose of their interests in it, to close it down or run it otherwise than through a licensee.
Where the question of a breach of contractual obligations or the failure or inability of the licensee is disputed, the licensee has the right to go to arbitration. And where the company decide to dispose of it, close it down or run it otherwise than through a licensee, the licensee will be entitled to compensation. The notice to be given is prescribed. Ordinarily, it will be three months but in exceptional circumstances — if there was a serious threat to property or life or any other incident classifiable as force majeure— the notice can be reduced to whatever, in the circumstances, is reasonable.
All existing licences will be deemed to contain provisions indicated in the order and the existing licences should be — in practice — in all respects the same as licences drawn up after the order comes into force.
Where the question of compensation on termination of a licence arises, the amount of the compensation will consist of (a) payment of 1/15 of the licensee's net income for the previous 12 months for each year a licence or short-term lease has been held continuously, plus (b) the full cost of redundancy payments due by the licensee to employees, plus (c) payment of the wholesale price of stocks held by the licensee. There is a provision which applies where a company say that they propose to dispose of a station, close it down or run it otherwise than through a licensee and it turns out that this reason for not renewing a licence is spurious. In that event the compensation will be doubled.
The order provides that disputes in the matter of rents, trading hours, engaging in other activities — that is other than the sale of petrol or oil — should also be arbitrable.
The arbitration arrangements will be binding on both parties and the arbitrator will be a person appointed by the President of the Incorporated Law Society. In the Dáil some reservations were expressed about the constitutionality of the provisions relating to arbitration. In particular, the question was asked whether the provisions prevent, or purport to prevent, either a licensee or a supplier from exercising his rights of access to the courts. I undertook to get advice about this matter and I am advised that these rights are not threatened and that there is no possibility of contraveniig the Constitution.
What I have outlined are the main provisions to give better security to short-term occupants of stations. Needless to say, I would have no objection to them all getting long-term tenancies which would have the protection of the Landlord and Tenant Acts, but this is not something which could reasonably be imposed on the companies and — perhaps more important — fair terms and conditions on which long-term leases would be offered would often be beyond the capabilities of short-term operators. Many of them, I feel sure, simply could not afford to pay the higher charges which could reasonably be expected when a company tied themselves under a long-term lease.
During the course of the inquiry, one of the petrol companies issued letters to retailers saying that the company proposed to change their conditions of supply. The intention was to introduce a minimum delivery of 5,000 litres — 1,100 gallons — of one grade or 7,000 litres — 1,500 gallons — where more than one grade of petrol was involved. The commission considered this development very relevant to their terms of reference and they re-opened the inquiry to deal with it.
A representative of the company which made the proposal accepted that the setting of a minimum delivery of 5,000 litres — 1,100 gallons — would automatically exclude those stations which, at present, have storage for only 1,000 gallons. In fact, it appeared to the commission that stations with 1,000 gallon tanks could consistently take deliveries of no more than about 4,000 litres — 888 gallons — because these tanks can contain up to 70 gallons of slurry and, in addition, the order would be even less than 930 gallons since allowance has to be made for a carry-over; the trader would not want to run out of stock before a delivery was made.
There is a large number of stations with 1,000 gallon tanks and it was not accepted that their level of efficiency was so low as to justify their disappearance from the market. Furthermore, their disappearance would cause problems for consumers. For these reasons it was decided to agree with the commission that the proposed 5,000 litre — 1,100 gallon — minimum delivery could not be accepted.
However, it was accepted that the few 2,500 litre — 500 gallon — tank stations are in a different class, and it is quite probable that, in any event, they will not remain in business much longer because they are unlikely to meet the cost of converting to metricated petrol pumps — something which has to be faced shortly.
Accordingly, in the interests of efficiency and economy in distribution, petrol suppliers should be free, within reasonable limits, to decide on levels of minimum deliveries and we are satisfied that the commission's proposals are fair and reasonable. The order provides that, where a wholesaler decides to fix minimum deliveries, they may not be lower than 4,000 litres — 888 gallons — of one grade or 5,000 litres — 1,100 gallons — where two or more grades are a delivery. The provision merely empowers the companies to introduce these minimum deliveries and I hope that, in so far as possible, companies will adopt a more liberal policy than the letter of the law provides for. In particular, I would urge the companies to give the smaller capacity outlets reasonable time should they opt to increase their storage facilities.
The 1961 Motor Spirit Order as amended by the 1972 order provides that a solus agreement shall not be for a term in excess of ten years and that no mortgage, hire-purchase agreement or loan agreement may contain any provision which requires a retailer to tie himself to a supplier after the expiry of his solus agreement. This is a very necessary provision so far as it goes. Where, however, a loan is given by a company to a dealer which is repayable over a period longer than ten years, or where part of the loan is repayable after the end of the solus agreement, the freedom of the dealer is curtailed. This is especially the case where there is no provision for early repayment of the loan and the company refuse to accept early discharge. Following a commission recommendation a provision has been included in the order to enable a retailer to pay off in advance, and in a single payment at any time he chooses, money due to a supplier whether the amount was due in one payment or in instalments. The order provides that, where there is interest payable, it should be reduced by such amount as may be appropriate having regard to the date and the amount of the repayment; but the interest — whether or not it is reduced — has to be repaid at the same time as the repayment of the capital sum.
Submissions about trading hours were considered by the commission. They accepted that a supplier should be free to require a solus retailer to keep a petrol station open sufficiently long to meet reasonable consumer needs, but the commision recommended and the order provides that the times of opening and closing should be left for the retailer to decide.
In the course of the inquiry, one supplier considered that the use of their brand name and trade mark should be restricted to the contracted independent and company-owned stations. They said that, during the petrol shortage in 1978, some stations were selling petrol which purported to be their brand whereas it was obtained from another supplier. They considered that this could lead to quality control problems and was not fair to their image. I am satisfied that the company had a grievance in certain respects and there is nothing in the order to prevent a supplier from recovering, or requiring the removal of, any sign which would convey to the public that a special degree of association existed between that station and that supplier. On the other hand, however, the public are entitled to know which brand of petrol is being sold from a pump and there is a provision in the order that a wholesaler shall not prohibit, restrict or penalise the display on a pump used for dispensing motor spirit an indication of the brand being dispensed by the pump.
There were eight orders relating to the distribution of motor spirit and motor vehicle lubricating oil and the commission recommended that they should be consolidated in the interests of making it easier for interested parties to interpret the provisions. The first half of the 1981 order merely reiterates such basic statutory rules as the ban on differentiation between traders of the same class; the circumstances in which suppliers may and may not apply different terms and conditions to different classes of traders; exceptional circumstances in which supplies may be refused; provisions relating to solus agreements; the prohibition of certain agreements and arrangements to restrict persons' rights to trade; and so on. The basic rules have been in force for 20 years and, except for some minor additions and amendments made mainly in 1972, they have stood the test of time and are still appropriate.
I am satisfied that the order we are confirming contains all the provisions required to regulate in a fair and equitable way the trading relations of petrol wholesalers and retailers. I commend the Bill to the House.