BHP, Arrow, Shell, Puma, Caltex and 7-Eleven are names that remind us just how big the fuel industry is in Australia. Oil companies like these enter into agreements with local retailers all across the country to supply fuel for resale to the public in return for initial and ongoing fees. Fuel reselling agreements define the relationship between these suppliers and resellers and set out the rights and responsibilities of the parties.
Many oil companies operate as franchises, and so there is significant crossover in this area with franchising. However, if you’re a fuel retailer, it’s important that you understand your legal agreement with the supplier and that you recognise its distinctive features. Below, we’ll explore five key elements of fuel reselling agreements.
What is the Relevant Law?
The Competition and Consumer (Industry Codes – Oilcode) Regulations 2006 – or more simply, the Oilcode – sets out the criteria and standards that fuel suppliers and resellers must meet.
The Oilcode applies to all fuel reselling agreements, where the retailer sells more than 30,000 litres of fuel per month, and which meet the following criteria:
- The supplier must provide the retailer with the processes and procedures that are used every day to sell fuel.
- The retailer’s business must be associated with a visible trade mark or symbol belonging to the supplier. This will be a name or logo that an everyday consumer would associate with a particular fuel supplier.
- Before starting or continuing the business, the retailer must pay (or agree to pay) an amount to the supplier. This could be:
- an initial investment amount when buying the business,
- a payment for goods and services the supplier provides, or
- an ongoing fee based on a percentage of income.
Importantly, the Oilcode sets out several obligations for fuel suppliers. Of note, a supplier must provide the retailer with a disclosure document and a copy of the Code. This disclosure document sets out information about the terms of the fuel reselling agreement and the operation of the retailer’s retail business. It should give the retailer everything needed to make an informed decision about the agreement and the viability of the business, including:
- detailed information on the supplier’s corporate structure and financials,
- supplier’s business experience in the industry,
- the existence of any current or recent legal proceedings involving the supplier, and
- a list of all other retailers in the supplier’s network.
A supplier must provide these documents before parties enter into or renew the agreement.
What Fees Can You Expect to Pay?
The fuel reselling agreement will set out what sorts of fees and price arrangements will apply throughout the fuel reselling relationship. A supplier may require initial fees, ongoing fees, or both. For example, an agreement may specify that the retailer agrees to pay the supplier a percentage of gross profits at the end of each accounting period.
In some cases, the agreement may also require a retailer to contribute to a marketing or other co-operative fund. If this is the case, the Oilcode requires the supplier to prepare an annual financial statement of the fund’s receipts and expenses.
What Do Fuel Reselling Agreements Have to Say About the Terminal Gate Price?
The terminal gate price is the price which a supplier will sell a petroleum product at a wholesale rate to a retailer. Suppliers sell at wholesale rates to their retailers because of the amount of fuel they are purchasing. It makes the process of regular large quantity fuel purchases much easier and helps ensure a timely delivery of the product.
Wholesale suppliers are required to provide a list of their terminal gate prices for all declared petroleum products they are selling. They must do this both:
- on a daily basis; and
- through an internet website maintained by or for the supplier.
A retailer will consistently rely on these listings when buying from the supplier.
Your fuel reselling agreement will include specific details on this process. The agreement will specify where the retailer can access the terminal gate price. It will also detail other conditions relating to the payment and delivery of the petroleum products. For example, the amount of notice that a retailer must provide a supplier when the retailer requires a fuel delivery.
What are the Licensing Obligations?
Fuel reselling agreements should specify what the supplier has licensed to the fuel retailer. Licensing then gives the retailer the right to:
- use established systems to sell petrol, and
- display and promote the supplier’s distinct brand name and logo.
A fuel reselling agreement will also commonly grant a licence for the retailer to use the business premises (i.e. the petrol station). This is often referred to as a ‘licence to occupy.’
Here, the supplier enters into a lease agreement with the site owner and then grants the retailer a licence to occupy. The agreement will usually dictate when and how a retailer can use the site. In practice, this means that a retailer has the right to use the site for anything connected to selling fuel. Notably, as a retailer, it is your responsibility to maintain the premises to ensure it is fit for purpose.
What are the Retailers Rights Concerning Duration, Termination, and Assignment?
Fuel reselling agreements will specify the term (i.e. length) of the contract. Ordinarily, this may be 5-10 years after the date which the parties schedule the agreement to take effect. Your agreement, however, may also state that it can expire before the term ends for other reasons.
For example, an agreement may say that if a lease is terminated with the supplier, the fuel reselling agreement with the retailer will expire. Some agreements may also give the supplier the right to buy back the business from the retailer without first negotiating the matter with the retailer. As a retailer, it is critical that you understand whether your agreement gives the supplier these sorts of rights.
The fuel reselling agreement will also detail how the parties may terminate or assign (transfer to another party) the contract. Retailers and suppliers should note that the Oilcode has strict provisions with regards to termination and assignment. For example, if the retailer is looking to sell the business to another person, the supplier must not unreasonably withhold their consent to the new person taking over.
In most circumstances, a supplier does not have the immediate right to terminate the agreement following a breach by a retailer. In fact, the supplier must explain to the retailer what must be done to fix the issue, and give the retailer enough time to take the necessary action. A breach of this kind might often be a failure by the retailer to operate the business’ operations manual. For example, the retailer may not be keeping the business open for all hours required.
An automatic right for the supplier to terminate the agreement does arise in some circumstances. These include where the retailer:
- Becomes bankrupt or insolvent: In this situation, the retailer can no longer continue running the business or purchase the fuel from the supplier.
- Voluntarily abandons or neglects the business: The supplier will quickly terminate the agreement to avoid any harm to the brand’s reputation.
- Is convicted of a serious offence: If a retailer is convicted of this type of offence, the supplier can terminate the agreement immediately.
- Operates the business in a way that is fraudulent or endangers public health and safety: Petroleum products need to be dealt with carefully, and in accordance with all regulatory standards to ensure public health and safety. If a retailer fails to do this, a supplier can terminate the agreement without notice.
The Oilcode highly regulates fuel reselling agreements. Whether you are a supplier or retailer, you have numerous rights and obligations that your fuel reselling agreement will need to reflect. If you have any questions or need assistance drafting or reviewing your fuel reselling agreement, get in touch with our specialist contract lawyers on 1300 544 755.
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