The House of Commons Business and Enterprise Committee has published a report on the practices of pub companies following a review of the interaction between pub companies and their tenants (the “Report”). The review focused, amongst other things, on the impact of the inclusion of beer supply ties within leases.
Beer supply tie agreements
A beer supply tie is an agreement between a pub company and a tenant which incorporates an obligation on the tenant to source some or all of the beer (and possibly other products) sold on the premises from the pub company, or from a supplier chosen by the pub company. The agreement may also incorporate a prohibition on sourcing beer or other products from any other alternative suppliers.
The findings of the House of Commons Business and Enterprise Committee
The Report concluded that the beer supply ties currently operated by pub companies may be anti-competitive and, as such, may have a detrimental effect on the pub market generally. The Report found that there were strong indications that the existence of a beer supply tie pushes up prices for consumers. Further, the Report expressed the Committee’s disappointment at the failure of the Office of Fair Trading (the “OFT”) to investigate the issue and called upon the Secretary of State to make a market investigation reference, to be undertaken by the Competition Commission. The OFT has, in response, stated that it had not received any evidence that had led it to believe that a wider investigation of the pub sector was warranted but that it would now consider the evidence contained in the Report carefully. The OFT further noted that it would carefully consider any supercomplaint in relation to the issues raised in the Report, if it were to receive such a complaint.
From Delimitis to Crehan – caselaw on beer supply agreements
The public house sector, and beer supply ties in particular, have been the focus of scrutiny previously, and have raised a number of interesting competition law-related issues. In the case of Delimitis (C-234/89), in which a network of beer supply ties were considered, the European Court of Justice established two conditions which set out the circumstances in which a beer supply agreement would infringe Article 81 EC Treaty (which are to be analysed as cumulative conditions): (i) there are significant barriers to competitors entering the relevant market or increasing their market share and (ii) the agreement in question makes a significant contribution to those barriers.
The European Commission (Commission) during the 1990’s examined the UK beer supply market finding that beer tie arrangements made it difficult for foreign brewers to enter the UK market and restricted competition. In a case following the Commission’s findings, Inntrepeneur Pub Company and others v Crehan, Mr Crehan, tied to agreements which contained provisions that all beer was to be exclusively purchased from a single brewer (and which also provided for a fixed minimum quantity to be purchased), claimed that because the brewer sold its products to independent purchasers at lower prices than to those who were tied into an agreement by virtue of their pub lease, such as himself, he could not compete with the lower prices of other public houses and his pub business had failed.
The High Court found that under the circumstances the first Delimitis condition had not been satisified and that there was no breach of Article 81 EC Treaty, despite the Court recognising that Mr Crehan’s business had failed as a result of the beer tie agreement. Mr Crehan appealed to the Court of Appeal and the case was referred to the European Court of Justice (ECJ). Following the ECJ’s decision that a party to an anticompetitive contract can rely on the breach of EC law to obtain relief fom the other party, the case went back to the High Court for a full trial. The High Court again dismissed Mr Crehan’s claim and Mr Crehan again appealed to the Court of Appeal, which upheld his appeal on the grounds that the High Court was obliged to follow the conclusions of the Commission and awarded damages to Mr Crehan.
The case was ultimately heard in the House of Lords and the question turned upon whether the Commission’s findings can be considered to be binding where a national court is considering an issue arising between different parties in respect of a different subject-matter. The House of Lords overturned the judgment of the Court of Appeal and upheld the judgment of the High Court, concluding that the Commission’s findings were not binding when considering an issue arising between different parties regarding a different subject matter. In such circumstances there is no possibility of conflict between a decision of the Commission and a decision of a national court.
The Report will now raise further doubts as to the long term sustainability and the compatibility with competition law of current pub company practices. As a result of the review, amongst other things, a market investigation may now follow. A market investigation involves an in-depth and extensive survey of a specific sector which is carried out by gathering the opinions and responses of a variety of interested parties with a view to recommending measures that will serve to redress any anti-competitive features that are found to exist within the sector.
Further, the OFT - in responding to the comments contained within the Report - recognised that a “super complaint” may be an appropriate way in which to seek legal redress. A super-complaint is a complaint submitted by a designated consumer body that 'any feature or combination of features, of a market in the United Kingdom for goods or services is, or appears to be, significantly harming the interests of consumers'. The right to submit super-complaints (by a super complainant) was created by the Enterprise Act 2002. There are certain designated super complainants, who are specified by the Secretary of State for Business, Enterprise and Regulatory Reform, and these include The Campaign for Real Ale Limited, The Consumer Council for Water, Which? (the Consumer Association), The General Consumer Council for Northern Ireland, The National Association of Citizens Advice Bureaux and The National Consumer Council (otherwise known as Consumer Focus).