Leo Boonzaier | Constitutional Court preview: Mighty Solutions v Engen

Share

10 August 2015 – Mighty Solutions CC t/a Orlando Service Station v Engen Petroleum Ltd CCT 211/14 (court papers, media summary)

Date of hearing:  Tuesday, 11 August 2015

Issue:  Whether section 2A(5) of the Petroleum Products Act allows a petrol retailer to resist eviction by the oil company from which it subleases

Background:  Oil companies are big.  Competition among them is limited.  And they are trying to get even bigger (pdf), and to reduce competition even more (sometimes illegally, it seems).  Regulators have tried in various ways to resist this.  Section 2A(5) of the Act, which was introduced in 2003, drives a wedge between suppliers and retailers by prohibiting any person from “mak[ing] use of a[n arrangement] which is aimed at or would result in a licenced wholesaler holding a retail licence”.  In short: you cannot be both a supplier and retailer of petrol.

This means Engen, like other fuel wholesalers operating in the country, cannot run its own petrol stations, and instead enters into what amounts to a franchise agreement coupled with a sublease: Engen leases the land, rigs it up as a service station, and then sublets it to a retailer, who runs the station using Engen’s branding and is locked into buying Engen’s petrol.  The retailer is not in a strong position.  It cannot operate a petrol station without making a Faustian pact with a major supplier like Engen.  That contract is likely to favour the supplier, on whose grace the dealer’s business existentially depends, and who has far greater resources to call upon in the event of a legal dispute.

That is the difficulty faced by Mighty Solutions, which contracted with Engen in 2005 to run a petrol station in Soweto.  Engen cancelled the agreement some years later and sought to evict Mighty Solutions, which resisted on the basis of section 2A(5) of the Act.  Its argument was essentially that the control Engen exercises over the retailers, who continue to trade under the Engen brand, amounts, in substance, to Engen’s holding the retail licence — in violation of section 2A(5)’s purpose, which is to prevent control over both fuel distribution and retail being consolidated in a single company.

The High Court was unmoved by this argument, and ordered Mighty Solutions’ eviction.  The gist of its reasoning was that, even assuming Engen has violated section 2A(5), it does not follow that this confers upon Mighty Solution a right to resist its eviction.

Things to watch:  Mighty Solutions is one of several service stations that have decided to fight the oil companies.  They have all been represented by the same attorneys, Venn & Muller, and the same advocate, Boris Savvas, who you can hear discussing the court challenge here.  Their arguments are tenacious — and tenuous.  They have been dismissed by the High Court three times: most recently in Shell v Exclusive Access Trading; also in Engen v Gundu Service Station, which both the Supreme Court of Appeal and Constitutional Court refused to hear on appeal; and then in the present matter, which the Constitutional Court is going to hear.

Engen, unsurprisingly, does not buy the David-and-Goliath tale.  Mighty Solutions’ conduct was, Engen says, “lawless and opportunistic”, refusing to leave land that it accepts it has no right to occupy, and in which Engen has made a huge capital investment.  Whether or not the retailers deserve one’s sympathies, they are trying to bring down the oil companies with a pitiful weapon.  The High Courts have rightly expressed bafflement at how section 2A(5) helps.  Even assuming the oil company has breached the section, why would that remove its common-law right to evict the retailer — who concedes, in this case, that it has lost its right, under the sublease, to occupy the land?  Section 2A(5) does not draw that connection.  Nor does any doctrine of the common law support that conclusion.  To the contrary.  If the parties’ agreement is illegal, and therefore void, as Mighty Solutions insists, that only harms its case: a non-existent agreement cannot give it any right of occupation.

The more natural interpretation is that the industry regulator, not the retailer, is the one who may hold Engen to account for its breach of section 2A(5).  That, after all, is what the other prohibitions in section 2A entail.  The retailers’ argument would in any event be a horribly crude and circuitous way of trying to regulate the oil industry.  Nevertheless, an audience before the highest court in the country might help them channel their burning sense of injustice.  Perhaps it will encourage an intervention from some regulatory body with a toolkit more apposite than the Court’s.

Leo Boonzaier

About Leo Boonzaier

Leo is an Editor for the African Legal Centre, and he reports on the Constitutional Court of South Africa. He has BSocSci and LLB degrees from the University of Cape Town and a BCL from the University of Oxford. He has worked as a visiting researcher at the Max Planck Institute for Private Law in Hamburg, Germany, and more recently as a law clerk at the Constitutional Court of South Africa. He is currently a doctoral student at the University of Oxford.