Case Analysis: Mobil Oil Australia Ltd v Wellcome International

This case study analyzes the landmark case of Mobil Oil Australia Ltd v Wellcome International (1998), focusing on key aspects of contract law. The case revolves around Mobil's promise to reward franchisees who met performance standards, and the subsequent abandonment of the scheme. The analysis delves into the issues of contract formation, specifically whether a unilateral contract existed, and the possibility of its revocation. It examines the legal arguments presented by both Mobil and the franchisees, including the concepts of offer, acceptance, consideration, and promissory estoppel. The judgment of the court, which disagreed with the trial court's ruling, is thoroughly discussed, highlighting the court's stance on the vagueness of the offer, the lack of detriment suffered by the franchisees, and the absence of misleading conduct under the Trade Practices Act. The case provides valuable insights into the complexities of contract law and the requirements for establishing a binding agreement.

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Introduction
Contract law, is a common law, which holds significance due to its common use in daily life of
every person, which not only includes the organizations, but also the common man (Mau, 2010).
And due to this significance, a number of cases are made on yearly basis whereby on or other
aspect of a contract is contested. At times the decision is very clear, and at other instances,
making this decision becomes a difficult task (Ayres and Klass, 2012). One of such cases where
the complexities of contract law were taken into consideration was the case of Mobil Oil
Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 (Jade, 2017). In the
following parts, this case has been discussed whereby the issues raised in this case, the relevant
laws, the arguments of the parties on the basis of the law and the judgement of the court has been
highlighted. But before doing that, a brief background of the case is given.
Factual background
Mobil had told its franchises those franchisees, who lives up to ninety percent of the performance
standards, would be rewarded pursuant to the scheme known as the “Circle of Excellence”, over
duration of six years. The reward in this case had not been discussed in a clear manner; however,
it essentially translated into the extension of the tenure of the franchisee with no costs. However,
just after four years, Mobil abandoned its scheme, even when different franchisees were
spending both time and money for living up to these standards. And as a result of this,
franchisees of Mobil initiated a case against it. The case went to the trial judge where it was
established that the abandonment of the scheme resulted in a situation where the franchisees
could not complete their performance. The trial court held that due to this action of Mobil, there

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is a need to treat the franchisees as entitled to the extension of their tenure and it would be
treated as if the condition of the scheme had been fulfilled. However, an appeal was made from
this ruling to the Full Court (Jade, 2017).
Issue
There were a number of issues which were raised in this case. The first one in this regard was
whether or not, a contract was formed in this case, due to the offer, acceptance and consideration
not being established. Further, whether or not there was a presence of unilateral contract and
whether the same could be revoked. Lastly, the issue was raised regarding whether or not, the
concept of estoppel could be used in this case.
Relevant Law
A contract can be defined as a promise exchanged between two or more parties, for undertaking
a particular promise, which becomes the obligation of the contract, and this promise covers one
party doing something and the other party fulfilling the requirement of consideration (Clarke and
Clarke, 2016). A contract can be formed in a written and an oral manner, where only the mode of
forming the contract differs, but an equally binding contract is created in both. In written
contract, the terms are written and signed by the parties, whereas in oral contract, the terms are
merely exchanged orally. In order to form any contract, some components have to be present,
included in which are the offer, acceptance, consideration, intention, capacity and clarity (Blum,
2007).

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An offer is made by one party, to another, which contains certain offered terms. It is crucial that
the offer is clearly differentiated from an invitation to treat. An invitation to treat represents that
the parties to the contract want to go forward with the negotiations on the basis of which the
contract is to be formed. An offer, on the other hand, represents that the parties want to start the
contract and have the intention of being bound legally (Andrews, 2015). In case of a conflict
between whether an offer has been made and an invitation to treat is made, the facts of the case
have to be considered. In order for an offer to be made, it is significant that it is clearly stated,
i.e., the terms which have been offered is properly stated and is not vague (Latimer, 2012).
The next step in formation of contract is acceptance. When a party has been made offer to, the
party has to be accept the offer in the manner in which it was made. The acceptance has to be
properly communicated to the offer making party and the date of acceptance is deemed as the
date on which the communication reaches the offer making party (Marson and Ferris, 2015). The
unilateral contracts, are however formed, where by the acceptance is not communicated, and
instead, it is acted upon. In other words, the performance of the unilateral offer results in the
unilateral contract being formed, where the performance becomes acceptance (Stone and
Devenney, 2017).
The next requirement for forming a contract is the component of consideration. Consideration is
the amount which is paid to the other party for undertaking the performance of the contract as
per the promise made (Gibson and Fraser, 2014). The amount of consideration is to be mutually
decided between the parties, and is acceptable so long as it has an economic value. The other
needed components include the intention of the parties to create and enter into lawful relations,
the clarity regarding the terms of the contract, and the parties to have the contractual capacity
(Mulcahy, 2008).

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Unilateral contracts were a key issue of this case and for this matter, different cases were referred
to. With this concept, the revocation was also something which was looked into in this case.
Revocation of a contract refers to the contract being terminated by one party. In unilateral
contracts, the issues are raised when the attempt is made to revoke the offer, once the
performance of the contract has started, but the same has not been finished (Lambiris and
Griffin, 2016).
One of the cases which were referred to in this case was the matter of Australian Woollen Mills
Pty Ltd v Commonwealth (1954) 92 CLR 424. The court held that neither consideration was
present in this case, nor was the legal intention (Australian Contract Law, 2010). In the case of
Errington v Errington [1952] 1 KB 290, the father had purchased a dwelling home for his newly
wedded son. The purchase money was borrowed by the father from building society where he
mortgaged the property. The father promised his son and daughter-in-law that he would transfer
the property to them if they paid the instalments of the property. They did so, but left the
property after some time, so the widowed mother continued to live there, and sought possession.
However, her claim failed as the acceptance of unilateral contracts is done on full performance
only. And the court also stated that the unilateral contract could not be revoked once the
performance was started (E-Law Resources, 2017).
The claims were also made based on promissory estoppel, which stops the promise making party
from going back on the promise which has been made by them. A breach of contract was also
claimed in this case which denotes that a promise which was made under the contract had been
contravened (Australian Contract Law, 2013). The claim was also made for violation of section
52 and 59 of the erstwhile Trade Practices Act, 1974 (Cth), however, during the appeal, only
section 52 was refereed to. This section relates to misleading or deceptive conduct, whereby a

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restriction has been placed on the businesses from indulging in such conduct which has the effect
of misleading or deceiving the consumers, or does actually mislead or deceive (Jade, 2017).
Application and the legal arguments of parties
The franchisees made an argument that an offer was made in this case, which was a unilateral
offer and which could be accepted by performing upon the terms of this unilateral offer. They
relied upon the convention being attended by Stumbles, where offer and representation were both
found in his address. This address was the one in which the 90% performance thing being linked
to the reward being given to the franchisees was made. They highlighted that they had relied on
this very statement made and that this was an offer made by Mobil, in which, by performing
better, the acceptance would be made to this offer and the consideration was the reward which
had to be given. This very statement was also claimed to be misleading by the franchisees,
resulting in a breach of section 52 of the Trade Practices Act (Jade, 2017).
Mobil on the other hand highlighted the clarity of terms as cancelling out the claims of the
franchisees. They stated that the statement made at the convention was ambiguous and vague. A
prerequisite in any offer is that it needs to be clear, but here the statement did not clarify about
the reward. The proposal was very vague which could not give rise to a contractual obligation.
Hence, an ambiguous statement could not be deemed as unilateral offer. Mobil relied on the case
of Australian Woollen Mills Pty Ltd v Commonwealth and stated that they had no legal intention
of making this statement as a unilateral contract. Further, even if a unilateral offer was deemed to
be made in this case, the case of Errington v Errington allows Mobil to revoke the contract
before the same was fully performed (Jade, 2017).

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The issue of consideration was also needs to be highlighted. The offer cannot be claimed to have
been made as there was no consideration for the promise which has been alleged to have been
made in this case. The reward was a vague term and for a consideration to be valid under
contract, it needs to be clearly stated as the terms of the contract need to be clear. With regards to
the breach of contract, Mobil stated that since a contract had not been formed for the lack of its
needed elements, a breach of contract could not be cited by the plaintiff. The franchisees also
have been wrong in stopping Mobil on basis of promissory estoppel as a promise was not made;
it was simply construed to have been made by the franchisees, which was not right. The claim of
breach of section 52 was also not present as per Mobil as the statement was made on reasonable
grounds and was not done with the intention of misleading or deceiving anyone. Further, there
was also an absence of the franchisees in recovering loss on the basis of reliance on this point.
There was no promise which could give rise to a claim of promissory estoppel. Hence, this claim
also needs to be quashed (Jade, 2017).
Judgment
When the matter went before the Full Court, they disagreed with the ruling given by the trial
court in this matter. For each of the issue raised by the franchisees, they gave their verdict. With
regards to the claim that an offer had been made in this case, the court stated that an offer was
not made by Mobil to its franchisees. This was due to the fact that the terms of the
communication were both vague and uncertain and it meant that there was a lack of certainty,
where the scheme was just in its developmental stage (Paterson, Robertson and Duke, 2012).
With regards to the unilateral contracts and its revocation, the court stated that there was no
universal rule regarding revocation of a unilateral contract and so, there was a need to make the

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decision on case to case basis. In this case, the franchisees had not suffered a detriment in any
manner, when they improved upon their own performance and so, there was a clear lack of real
consideration. And they concluded that an offer which was made in return to the performance of
an act, which was like any other offer, could be revoked at any point of time (Paterson,
Robertson and Duke, 2012).
Finally, the court took under the issue raised by franchisees to apply the concept of promissory
estoppel. For this purpose, the court stated that it was essential to be shown that the defendant
had encouraged an assumption that a specific lawful interest or a relationship would be created
from the statement which was made at the convention. There was a clear lack of the details and
the elements required to form a lawful relationship in this case. The generalised commitment of
the defendant to finding a way could not be deemed as an assumption that a lawful relationship
would be created. Hence, an emphasis was given on the creation or the encouragement by
defendant of an assumption that an interest is being granted to the plaintiff. Hence, as there was
no element of assumption in this case, the doctrine of estoppel was not raised in this case
(Paterson, Robertson and Duke, 2012).

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Australian Contract Law. (2010) Australian Woollen Mills Pty Ltd v The Commonwealth.
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Australian Contract Law. (2013) Mobil Oil Australia v Wellcome International. [Online]
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Ayres, I., and Klass, G. (2012) Studies in Contract Law. 8th ed. New York: Foundation Press
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E-Law Resources. (2017) Errington v Errington Woods [1952] 1 KB 290 Court of Appeal.
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https://jade.io/article/114770 [Accessed on: 16/09/17]

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