British petroleum giant Shell has been accused of using coercion, duress, harassment, threats and unfair tactics against its franchisees operating fuel stations across South Africa.
The Shell Retailer Council (SRC), representing a number of Shell outlets, has approached the Johannesburg high court to interdict Shell Downstream South Africa from using “draconian” and unfair tactics against its members. Franchisees also want the court to order Shell to halt what they say is a breach of the Consumer Protection Act (CPA).
The SRC argues in its court papers that the multinational — the third-largest petroleum wholesaler in South Africa — has imposed unfair, unreasonable and unjust contractual obligations on its members.
According to the SRC, the annual turnover of Shell’s South African operation is about R1.76bn and the company collects an estimated R388m from 450 franchise sites in franchise/royalty income annually.
Among other things, the SRC complains that franchisees are forced to pay “development fees” when Shell “unilaterally” revamps their business premises and refusal to do so brings threats of termination or nonrenewal.
“The development, and accompanying development fees, is imposed on the SRC member (franchisee) resulting in them assuming the risk of a loss-making development; the assumptions, estimates, projections and speculations underlying the calculation of the development fee due and payable are highly subjective and unrealistic…
A prospective and/or renegotiating SRC member is presented with little-to-no choice when it comes to accepting standard terms & conditions of the type prescribed, imposed and/or prepared by Shell
— SRC court papers
“A refusal … to participate in a development is regarded by Shell as a fundamental breach… resulting in the threat of its cancellation, alternatively a refusal to renew and/or extend the Shell franchise agreement,” the council says.
It says the actual cash flows and returns yielded by revamps do not match Shell’s assumptions, estimates and projections, which are “inaccurate and unrealistic”.
The SRC accuses Shell of employing threats, harassment and unfair tactics to force its members to pay debts, including the development fees “and/or utility and/or consumption charges”.
“The relevant SRC members … genuinely fear recriminations, victimisation and/or retribution by Shell should they be identified as [participating] in this action and/or assisting in the pursuit of this claim…
“Shell has no lawful and/or legally valid, sustainable, identifiable and/or enforceable basis to demand payment of any such prescribed debts; and/or to justify its receipt and retention of payment of any amounts towards and/or representing such prescribed debts; and/or to justify its receipt and retention of payment of any amounts towards and/or representing such prescribed debts,” the court papers say.
Neither the SRC nor individual members were willing to speak to the Sunday Times, saying they feared victimisation.
At the centre of the SRC’s legal argument is the claim that the Shell franchise agreement fails to provide franchisees with a fair degree of bargaining power.
“A prospective SRC member and/or a renegotiating and/or renewing SRC member is presented with little-to-no choice when it comes to accepting standard-form terms and conditions of the type prescribed, imposed and/or prepared by Shell… (Franchisees) enjoy no bargaining equality, say and/or influence in the negotiation and conclusion of a Shell franchise agreement,” the court papers say.
According to insiders, the SRC’s court application, which was filed in December, was inspired by a case three months earlier when the South Gauteng High Court ruled in favour of the Fuel Retailers Association in a dispute with the minister of mineral resources & energy, the South African Petroleum Industry Association and others.
A key element of the case was what judge Ingrid Opperman referred to as “unequal bargaining power between the fuel retailer and the oil company in the context of any negotiation about entrepreneurial compensation”.
The SRC wants the court to declare that Shell has breached provisions of the CPA because it fails to make full disclosure to franchisees of financial and other information that affects them.
“[Shell] compels SRC members to purchase from Shell-nominated and/or approved suppliers,” the court papers say. It does so “in the absence of any disclosed rebate to Shell [and regardless of] their price competitiveness, their ability to supply and/or deliver timeously [and of] the fact that SRC members are forced to absorb inflated prices”.
The SRC says owners of fuel stations have no “authorised alternative source” of supply when prescribed suppliers run out of stock. “Shell’s conduct constitutes unfair and/or unreasonable contractual practices.”
The franchisees complain that Shell fails to disclose the total investment required when a franchise agreement is signed, or spell out further financial obligations such as development fees.
Shell spokesperson Monica Sithole did not respond to a request for comment sent on Thursday.
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