Esso Petroleum Limited v Commisioners of Customs and Excise [1975] UKHL 4 (10 December 1975)

Esso offered 'World Cup Coins' with petrol purchases. Customs and Excise sought purchase tax, arguing a sale occurred. The House of Lords held there was an intention to create legal relations, but no 'sale' of the coins, which were merely part of a single contract for petrol.

Facts

Esso Petroleum devised a sales promotion scheme to increase sales of its petrol. For every four gallons of Esso petrol purchased by a motorist, Esso would provide one ‘World Cup Coin’, part of a collectible set. The coins themselves had little to no intrinsic value. The Commissioners of Customs and Excise contended that the coins were ‘produced in quantity for sale’ and were therefore liable for purchase tax under the Purchase Tax Act 1963. Esso argued that the coins were free gifts and that there was no sale, thus no tax was due.

Issues

The central legal question was whether the supply of the coins constituted a ‘sale’ within the meaning of the Purchase Tax Act 1963. This depended on the resolution of two primary contractual issues:

1. Did the parties (Esso and the motorist) intend to create legal relations with respect to the supply of the coins?
2. If so, what was the nature of the contract? Was there a collateral contract for the supply of a coin in consideration of the motorist entering into a contract to buy four gallons of petrol, or was there a single contract for the sale of petrol, with the coin offered as a mere inducement or ‘free gift’?

Judgment

The House of Lords was divided in its reasoning but unanimously allowed Esso’s appeal, finding the coins were not produced ‘for sale’.

Majority View (Lord Simon, Lord Wilberforce, and Lord Fraser)

The majority found that there was an intention to create legal relations. They reasoned that the promotion was conducted in a commercial context from which Esso expected to derive significant benefit. Lord Simon of Glaisdale stated:

The whole transaction took place in a setting of business relations… It seems to me in general undesirable to allow a commercial promoter to claim that what he has done is a mere puff, not intended to create legal relations.

However, the majority concluded that there was no ‘sale’ of the coins. They determined there was a single contract for the purchase of petrol. The coins were not sold for a monetary price; rather, they were part of the overall transaction. Lord Fraser of Tullybelton clarified the contractual structure:

In my opinion there was no contract of sale of the coins. There was a contract for the supply of a coin with every four gallons of petrol… The consideration for the transfer of the coin was not a money payment, but the making of another contract… This is not a contract of sale of goods, which requires a money consideration.

Therefore, as the coins were not supplied for a price in money, there was no ‘sale’ as required by the Act, and no purchase tax was payable.

Minority View (Viscount Dilhorne and Lord Russell of Killowen)

The minority held that there was no intention to create legal relations concerning the coins. They viewed the coins as trivial items, akin to a free gift, and believed it unlikely that a motorist would sue for breach of contract if a coin was not provided. Viscount Dilhorne expressed doubt:

…it is to my mind incredible that any motorist who bought four gallons of Esso petrol would have contemplated for one moment that if the garage proprietor failed to give him a coin, he could have sued him for its value, probably then a few new pence, or for damages.

On this basis, they concluded the coins were not supplied under any contract and could not have been ‘sold’. They therefore also concluded that no purchase tax was due, arriving at the same outcome as the majority but through different reasoning.

Implications

The case is a leading authority on the intention to create legal relations in a commercial context. It establishes a strong presumption that commercial agreements are intended to be legally binding, even when they involve promotional offers or ‘free’ items. The decision also provides a detailed analysis of the definition of a ‘sale’, distinguishing between a collateral contract (where the consideration is entering into another contract) and a contract of sale (which requires a money consideration). It clarifies that for an item to be ‘sold’, a specific price must be attributable to it, rather than it being an incidental part of a larger transaction.

Verdict: The appeal was allowed. The coins were not produced ‘for sale’ and were therefore not liable for purchase tax.

Source: Esso Petroleum Limited v Commisioners of Customs and Excise [1975] UKHL 4 (10 December 1975)