Legal Updates

An agreement that requires the purchase of services from only one vendor is void as a restrictive trade arrangement

August 29, 2019

A distributor of fuel built a gas station for an owner of right in land in exchange for an obligation to purchase the fuel products only from it and at prices set by it. In order to ensure that this undertaking is fulfilled, the land was leased by him to the fuel company and it appointed him as the station operator and retained the contractual right to remove him from the land if he breaches his obligations.
The Court held that this is a restrictive trade arrangement and is therefore void. A restrictive trade arrangement is an arrangement between businesses under which at least one of the parties restricts itself in a way that may prevent or reduce competition in business between it and the other parties to the arrangement, or some of them, or between it and a person who is not a party to the arrangement. The law sets that a restriction of competition exists, inter alia, where there is a restriction on the price that will be required, offered or paid, profit generated, or market division and that a restrictive trade arrangement is void as it is illegal. The exclusivity condition requiring purchase only from the fuel company constitutes a restrictive trade arrangement and therefore the entire arrangement is void, including the lease agreement aimed at securing the arrangement.