P & S Amusements Ltd v Valley House Leisure Ltd & Anor

These are as follows.

This case is about a beer tie in a lease of a bar and night club, known as Gaiety’s, on the Golden Mile in Blackpool. The claimant, P&S, is the landlord. The first defendant, VHL, is the current tenant. The second defendant, Mr Peter Valentine, is the controlling shareholder in VHL, and for a time was the tenant of the bar himself. The lease was granted to a predecessor of Mr Valentine and VHL as tenant in 1991. The term of the lease is 20 years. The landlord, which has at all times been P&S, has the right under the beer tie provision to require the tenant to purchase its requirements of beer from the landlord’s nominated supplier. In 1991 P&S nominated the brewery company, Matthew Brown. (Matthew Brown was and is a member of the Scottish & Newcastle group. Another member of that group was and is John Smith’s. Scottish & Newcastle, Matthew Brown, and John Smith's have tended to be referred to interchangeably in the events which underlie the case and in the trial. For most purposes of this case they should be regarded effectively as the same person.) There was an arrangement or agreement between P&S and Scottish & Newcastle whereby, on quantities of beer purchased by the tenant, Scottish & Newcastle made payments, described as ‘discounts’, to P&S.

That continued until 2002, but in that year Scottish & Newcastle terminated the arrangement between itself and P&S. Its subsidiary, John Smith’s, continued to supply beer to the tenant, but Scottish & Newcastle stopped paying discounts to the landlord, P&S. P&S then gave notice under the beer tie provision that the tenant should buy its supplies of beer from a new nominated supplier, Carlsberg-Tetley. The tenant has not complied with the notice, which it says is not binding upon it, and has continued to buy its supplies from the Scottish & Newcastle group.

By this case: (1) P&S seeks an injunction restraining the tenant from purchasing its supplies of beer from John Smith’s or any person other than its (the landlord’s) nominated supplier; (2) P&S seeks an inquiry as to damages which it claims to have suffered by reason of breaches of the tie by the tenant; and (3) the tenant counterclaims for an order that P&S should pay to it an amount equal to the discounts received from Scottish & Newcastle, for which the tenant contends that P&S is accountable to itself.

The defendants have raised issues under competition law as well as issues of a more general nature. On 31 March 2005 Master Bowles made an order, one paragraph of which was: ‘There be a split trial of all issues of liability excluding all issues of competition law and quantum.’ The first part of that split trial was heard by me over four days in November and December 2005.

For the reasons which I will explain in this judgment, my decisions on the three issues which I identified in paragraph 4 above are as follows.

I record here that Mr Nigel Gerald appeared for the claimant (the landlord), and that Mr Stephen Cogley appeared for the defendants.

In 1991 Mr Peter Stefani was a Blackpool businessman. He and other members of his family (including, I think, his sister) owned premises at 169 Promenade, Blackpool, on the Golden Mile. The premises were in poor condition, but another Blackpool businessman, Mr Robbins, who was experienced in the licensed premises sector, thought that they were suitable for conversion into a bar and nightclub. However, the conversion was going to be expensive. Mr Robbins could not finance it. It is well known (and was equally well known in 1991) that breweries may be prepared to lend money for the construction or improvement of pubs and clubs. A beer tie is always (or at least usually) part of the package which breweries want in return for providing a loan. However, it appears that Mr Robbins personally, or a company owned by him, would not have been an acceptable borrower. The same was not true of Peter Stefani (who was advised by Mr Collins, a licensed trade consultant), so an arrangement was made of which the following were the salient features.

Findextra and Mr Robbins soon fell into financial difficulties, and on 27 January 1992 Findextra assigned the lease to Mr and Mrs Valentine. Mr and Mrs Valentine had made a loan to Findextra in 1991 when Findextra was getting the bar trade started. Thereafter for some years the trade of operating the bar was owned by Mr and Mrs Valentine. However, Mr Robbins and Mr Crowson continued to be involved, and they have always been the persons who managed the business on a day to day basis.

On 8 May 1998 the lease was assigned by Mr and Mrs Valentine to their company, VHL, the first defendant. So since 1998 VHL has been the owner and operator of the trade carried on as Gaiety’s bar. Mr Robbins and Mr Crowson have still continued to be the individuals present at the bar, managing the operation.

Over the years from 1991 to 1998 and beyond (in fact until 2002, as I will describe below) the basic structure put in place in 1991, which I summarised in paragraph 8 above, remained in operation. The owner of the trade from time to time (Findextra, then Mr and Mrs Valentine, then VHL) continued to purchase the bar’s supplies of beers and other drinks covered by the beer tie from a Scottish & Newcastle group supplier – originally Matthew Brown, later John Smith’s, though I think that the change was only one of name and that in practice supplies came from the same source throughout. (In saying that the owner of the trade continued to purchase the bar’s supplies from the Scottish & Newcastle group supplier I ignore for the present the alleged purchases of Budweiser outside the tie. I shall say more about that later. See paragraphs 52 et seq below.) Findextra, Mr and Mrs Valentine, and VHL continued to be invoiced by Matthew Brown or John Smith's for the supplies, and continued to pay the invoices. Scottish & Newcastle continued to pay discounts to the landlord (P&S), calculated upon the barrelage of the purchases made by whoever from time to time was the owner of the bar trade. In fact in most years there seems to have been a letter from Scottish & Newcastle to P&S making variations of detail to the agreement or arrangement subsisting between P&S and Scottish & Newcastle: for example the amount of the loan outstanding between the landlord and Scottish & Newcastle may have changed, and on at least one occasion the rates of the barrelage discounts payable by Scottish & Newcastle to P&S were increased.

At this point I return to the question of whether the tenants (meaning in practice for most purposes Mr Robbins and Mr Valentine) knew about the discounts which Scottish & Newcastle was paying to P&S. It does not affect my ultimate decision in the case, but I find that they did not know about them. They were adamant in their evidence that they did not. In opposition to that Mr Gerald (counsel for the landlord) said that it would have been surprising if they did not know. He said, and I accept, that the payment of discounts by breweries to lessors where the tie was contained in a lease between a non-brewery lessor and a publican (and not in an agreement between the brewery and the publican), was an arrangement reasonably well known to persons knowledgeable in the licensed premises business. (Examples of such a structure have featured in the numerous cases involving leases from companies in the Inntrepreneur group to publican lessees. The most prominent such case is probably the Court of Appeal decision in Courage Ltd v Crehan [1999] EWCA Civ 1501; the litigation in that case did not stop with the Court of Appeal decision, and indeed has still not ended at the time when I am writing this judgment, but the 1999 judgments of the Court of Appeal focused on the structure subsisting between lessor, lessee and brewery, of which one feature was payments from time to time from the brewery to the lessor.) Mr Gerald may also be right when he says that, if Mr Robbins and Mr Valentine had thought about it, they could have worked out for themselves that there would probably be consideration of some sort from the Scottish & Newcastle group to the landlord in recognition of the landlord having secured for the group the custom of the tenant as a purchaser of beer and other drinks. There were some elements in the evidence of Mr Robbins which cause me wonder whether he at least had suspicions along those lines. Nevertheless, I very much doubt that he had thought the matter through. And, more significantly, having heard the evidence of Mr Valentine and of Mr Valentine’s son Gavin, I am convinced that they did not know about the payments of discounts from Scottish & Newcastle to P&S until the events which I describe next.

In the middle of 2001 there was a short and inconclusive discussion between, on the one hand, Peter Stefani and his son Leon and, on the other hand, Mr Robbins (presumably on behalf of Mr Valentine and VHL) about whether the tenant might ‘buy out the tie’. The commercial background must have been the widespread understanding in the licensed trade (which has now been a feature of so many recent cases in the courts that it would be obscurantist for me not to recognise it) that beer prices to publicans charged by breweries are considerably higher for tied purchasers than for free of tie purchasers. The reason is that breweries offer generous discounts to free of tie purchasers, but not to tied purchasers. They may allow some discounts to tied purchasers (as it appears that in later years Scottish & Newcastle’s subsidiary John Smith’s did to VHL – see paragraph 17 below), but the discounts are invariably much lower than those extended to free of tie purchasers.

The discussion about buying out the tie took place over lunch at a Blackpool restaurant. It seems that Peter Stefani said that his company would require £250,000. The figure seemed out of the question to Mr Robbins, and when he reported it to Mr Valentine the latter took the same view. That was the start and the finish of the discussion of buying out the tie. However, one matter which did emerge in the course of it was that P&S was receiving discount payments from Scottish & Newcastle calculated on VHL’s purchases from Scottish & Newcastle breweries. That was when the Valentines realised that P&S had been receiving discounts ‘on the back’, as they put it, ‘of our purchases’. Although they were poor witnesses on their own behalf – blustering and aggressive, and absurdly maintaining that it was a pure coincidence when large tracts of their witness statements were verbatim the same as each other – I could not possibly doubt that they felt outraged when they learned about the discounts. Personally I do not think that there was much for them to feel outraged about, but that is certainly how they felt.

Before the Valentines got round to doing anything substantial to give effect to their outrage a sad event occurred. Peter Stefani unexpectedly died in September 2001. Thus there has been no evidence from him. His son Leon had been involved to a small extent in the affairs of P&S, but he was not really interested, and has taken no effective part since 2001. He was a witness, but his evidence did not effectively go to the issues which the case is about. Peter Stefani’s other son, Marcus, became a director after his father’s death, and he is now the principal figure in the company. However, he had had nothing to do with the company in earlier years, and all that he could do in evidence was to recount as best he could what he remembers his father having told him over the years before his father died.

In paragraph 14 above I said that the Valentines were outraged when, in the summer of 2001, they learned that the landlord, P&S, had been receiving discounts from Scottish & Newcastle. They did not do anything about it until the following year. That delay led Mr Gerald to suggest that perhaps they were not so outraged as they now say that they were, and that they had known about the discounts all along. However, I do not accept that. The evidence was that in Blackpool anyone involved in the entertainment and hospitality business is flat out in the summer months, and then is likely to go away for a lot of the winter period, when Blackpool virtually shuts down. Mr Valentine also commendably observed that, when a family has suffered a tragedy like the death of Peter Stefani, other persons will not for the time being want to raise contentious business matters with the surviving family members.

In 2002, after a letter from Marcus Stefani to Mr Robbins asserting that VHL had been making purchases outside the tie, correspondence developed between the solicitors for P&S and the solicitors for the defendants about the discounts which the landlord had been receiving from the brewery and to which the tenant took exception. On 16 July 2002 Mr Valentine raised the matter in a letter to the officer of the John Smith’s North sector of the Scottish & Newcastle group with responsibility for the trading relationship with VHL. Mr Valentine wished to discuss a package of discounts to be paid only to the tenant, thus cutting out the payment of discounts to P&S, the landlord, which had been going on for the past eleven years. For some years (I do not recall the evidence revealing how many) Scottish & Newcastle had been allowing small discounts to VHL on its purchases of beers (discounts of which P&S knew nothing), but those discounts were much smaller than the payments which it had been making to P&S. The Valentines made it clear to the officers of John Smith’s that they were exceedingly dissatisfied. Scottish & Newcastle (and thus John Smith’s) took a decision to stop paying discounts to P&S, and to allow full discounts to the tenant, VHL, instead.

On 1 August 2002 Mr Murray of John Smith’s (a witness, and the John Smith’s representative with whom the tenant, VHL, regularly had its dealings) wrote to Marcus Stefani saying: ‘… the commitment made by Mr P Stefani on behalf of P & S Amusements with John Smith’s Ltd, has now ceased. … On this basis any agreements between ourselves and P & S Amusements are now concluded’.

Since then Scottish & Newcastle has paid no discounts to the landlord, P&S. VHL has continued to buy supplies of beer from John Smith’s. I have no doubt (although I cannot recall whether there was any specific evidence about it) that John Smith’s has been allowing substantial discounts to VHL on its purchases, and that the amounts of the discounts will have been approximately equal to the small discounts which John Smith’s had been allowing to VHL before 2002 plus the considerably larger discounts which Scottish & Newcastle had been paying to P&S calculated by reference to VHL’s purchases.

In a letter dated 8 November 2002 from P&S’s solicitors to the defendants’ solicitors the tenant, VHL, was notified as follows: ‘…the “Nominated Supplier” referred to in the lease of the above premises dated 24 July 1991 has been changed to Carlsberg-Tetley Brewing Limited. … Please ensure that under the terms of the lease full cooperation is given to Carlsberg-Tetley Brewing Limited as the Nominated Supplier and that purchases of all designated beers as defined in the lease are obtained exclusively from this source.’ Notwithstanding that letter the tenant has not in fact made its purchases from Carlsberg-Tetley, but, as I said earlier, has continued to make them from the Scottish & Newcastle group.

I begin with a point about the formal structure of the lease, and its effect on the numbering of provisions in it. The beer tie provisions are tucked away in a sub-sub-clause, clause 2(11)(C) of the lease. That sub-sub clause is itself divided into different paragraphs, some of which have sub-paragraphs and sub-sub paragraphs within them. There is, for example, a clause 2(11)(C)(1)(b)(ii). That sort of numbering has a logic behind it in the structure of the lease, but it is totally unwieldy and, if I attempted to use it in its complete form in this judgment, confusion would certainly result. For that reason I shall, when referring to specific parts of the beer tie provision I shall in this judgment omit ‘2(11)(C), and I shall use the word ‘clause’ to refer to separate parts of the entire provision. Thus, for example, when I refer to ‘clause (1)(a)’, that, if written out at length would be a reference to clause 2(11)(C)(1)(a). I hope that this will make this judgment easier to follow.

I preface setting out the relevant provisions of the beer tie provision by commenting that it is obviously taken from a precedent. Further, it is in my view also obvious that the precedent was originally one for a case where the landlord was also the brewery which supplied the beers, etc, pursuant to the tie. The precedent has at some stage been adapted to cover also the case where the landlord is not the supplying brewery. That has been done mainly through the concept of the landlord’s ‘nominated supplier’, but the original content of the beer tie provision (covering a case where the landlord was also the brewery) can, I believe, be seen at a number of points where a reference to the landlord’s nominated supplier (as well as to the landlord itself) is logically appropriate but has not been inserted. One example is in clause (3)(a) just before ‘the tailpiece’, which I will explain about below.

The complete beer tie provision occupies three pages of the lease. I do not need to reproduce it all. In what follows I will set out the parts of it which could be material for purposes of this case.

“(1)

The Tenant agrees

(a)

to purchase only from the landlord or its Nominated Suppliers all the Tenant’s requirements for the designated Beers for sale on the Demised Premises

(b)

not to sell or make available for purchase or bring on to the Demised Premises for the purpose of resale any Beer other than the designated Beers unless such other Beer is of a different type from any of the designated Beers …

(2)

The Landlord will to the best of its ability supply the Tenant with or will procure the supply by its Nominated Suppliers to the Tenant of all the Tenant’s requirements for the designated Beers and in the event of the Landlord and its Nominated Suppliers being unable to supply for any reason the Landlord on application from the Tenant will release the Tenant from the Tenant’s exclusive purchasing obligations under this clause to such extent as shall be appropriate having regard to the nature and likely duration of that inability to supply”

Before I continue and set out clause (3)(a) it is convenient to make two comments. First, I referred earlier to ‘the tailpiece’. That is my expression; it is not taken from the lease. The tailpiece comes at the end of clause (3)(a), and I indicate where it begins by inserting a double asterisk immediately before it. That is my insertion, and does not appear in the lease. The draftsman has not put punctuation marks in the lease, but if he had there would have been a comma or a semi-colon where I have placed the double asterisk. Second, the example which I mentioned earlier, of a reference to the landlord’s nominated supplier being required but overlooked in the adaptation of the original precedent, comes immediately before the words ‘may require’, which themselves come immediately before my inserted double asterisk. ‘the Landlord’ plainly ought to read ‘the Landlord or its nominated suppliers’.

“(3)

The Tenant agrees:

(a)

to pay trading accounts and statements from the Landlord or its nominated suppliers within 14 days of the same being rendered by standing order from the Tenant’s bankers to the credit of the Landlord’s or its nominated suppliers’ bankers as shall be designated from time to time or [in] such other manner as the Landlord may require ** all goods to be charged at the prices on the Landlord’s or its nominated suppliers current standard trade price list for the region in which the Demised Premises are situate

…

(7)

The expression ‘Designated Beers’ shall mean such Beers as are more particularly specified in the Fifth Part of the Schedule hereto.

…

(9)

The expression ‘nominated suppliers’ shall mean such undertakings entrusted by the Landlord with the distribution of Beers and Liquors as the Landlord may nominate from time to time”

As clause (7) indicates, Designated Beers are specified in the Schedule. The specifications there are by type, not by brand. Thus for example they include ‘Light Pale or bitter ale’ and ‘Lager’. They do not specify particular brands of bitter or lager. Documents in the bundles before the court demonstrate that the list of designated beers which was used in the lease was supplied by Scottish & Newcastle. In so far as that has any significance, it shows that, although the lease was going to be between P&S and Findextra, nevertheless the brewery group knew about the lease when it was being negotiated. Scottish & Newcastle must, as it seems to me, have known that the lease was going to contain beer tie provisions, and must have expected that a brewery company in its group was going to be nominated by the landlord as the supplier.

I have some general observations to make about the beer tie provision before I proceed to consider the particular issues which were argued before me.

In my view the answer is: yes. The tenant is, and always was, bound by the beer tie provision. The question is only of practical importance for the period after 2002, when the landlord nominated Carlsberg-Tetley as a new nominated supplier to replace Matthew Brown or other companies in the Scottish & Newcastle group. In earlier years, whether the tenant was as a matter of law bound by the beer tie provision or not, the tenant did in fact obtain its supplies from a Scottish & Newcastle supplier, and Scottish & Newcastle did in fact pay discounts to P&S based on the barrelage of beers supplied to the tenant. The issue of whether the tenant was bound by the tie would have had a practical significance for some of the earlier period if I considered that P&S had made good its contention that it has a damages claim in consequence of the tenant having made purchases of Budweiser in breach of the tie at some times before 2002. However, given my decision on that issue, the enforceability of the tie provision only really matters from 2002 onwards.

In the following paragraphs of this part of my judgment I will first explain the positive reasons for my view that the tenant was and remains bound by the tie. I shall then discuss various arguments which Mr Cogley has advanced for the contrary conclusion.

In my view the critical contents of the beer tie provision are clauses (1)(a) and (9). By clause (1)(a) the tenant agreed to purchase only from the landlord or its nominated suppliers all its requirements for the designated beers. That provision continues in force throughout the term of the lease. (This feature clearly rankles with Mr Robbins. In his evidence he said that, when he discovered that Scottish & Newcastle had been paying discounts to the landlord from 1991 to 2002, it seemed to him that eleven years of discounts ought to have been enough. However, there is no doubt that, if the beer tie provision was binding on the tenant in 1991, it is binding on the tenant now, and will, unless released by the landlord, remain binding on the tenant until the lease expires in 2011. The final words of clause (9) (‘as the Landlord may nominate from time to time’) clearly empower the landlord to change the nominated supplier. The landlord did that on 8 November 2002, when Carlsberg-Tetley was nominated as the supplier in place of Matthew Brown or another Scottish & Newcastle group company. Therefore in the events that have happened the tenant ‘agrees to purchase only from [Carlsberg-Tetley] all the Tenant’s requirements for the designated beer for sale on the Demised Premises’ (that is in Gaiety’s bar). The tenant has not been doing that. There have been numerous cases about the validity of beer ties in the courts over the last twenty or so years. Competition law arguments apart, the ties have always been held to be enforceable in principle in English law. That does not, of course, rule out possible defences based on particular facts of an individual case, such as misrepresentation. But the key point is that as a matter of general principle, if a tenant of a pub signs a lease which contains a clause binding him to obtain his supplies of beer from the landlord or a supplier nominated by the landlord, he is bound by the clause. So also is an assignee of the original tenant.

In my view the tenant in this case, now VHL, is bound by the beer tie provision which the lease contains, but I must consider a number of possible arguments to the contrary effect.

Mr Cogley makes a submission based on the word ‘requirements’ in the expression ‘all the Tenant’s requirements for the designated Beers’ found in clause (1)(a) and repeated in clause (2). The submission is that the word embraces, not just the quantities and kinds of beers which the tenant wants (x barrels of John Smith’s bitter, y barrels of Heineken lager, z gross bottles of Budweiser, and the like). The word also embraces the prices which the tenant wants to have to pay for the beers. If the tenant wants x barrels of John Smith’s bitter, but wants to receive the maximum discount on them which the brewery allows to purchasers generally, the tenant’s ‘requirement’ is not for x barrels of John Smith’s bitter, but is for x barrels at the maximum possible discount. I cannot accept this argument. The requirement in that example is simply for x barrels of John Smith’s bitter. Further, by clause (2) the landlord to the best of its ability ‘will procure the supply by its nominated suppliers to the tenant of all the tenant’s requirements for’ (in this example) John Smith’s bitter, and clause (3) seeks, in the tailpiece, to deal with the price. It is true that, for reasons which I have explained earlier and to which I will return, the pricing provisions in the tailpiece do not really work in a case, like this one, where the landlord is not also the supplying brewery. But it remains the case that the parties to the lease sought to deal with the question of pricing of supplies, whether they did so effectually or not, in a specific provision about it. That leaves no room for the pricing to have been covered already by the word ‘requirements’ in clauses (1)(a) and (2).

Mr Cogley next says that there are respects in which some of the detailed contents of the beer tie provision have not been operated according to their terms. The foremost example of this, as respects which I agree with him at the first stage of the argument, is the tailpiece to clause (3)(a). As I have said earlier, although the tailpiece says that all goods are to be charged at the nominated supplier’s list prices (which means without discounts), that was not a matter which could be regulated by an agreement between the landlord and the tenant. It was a matter between the tenant and the brewery, and if the brewery agreed to sell beers to the tenant at discounted prices (as John Smith's did for some of the time), the provision in the tailpiece could not and did not change that. At the risk of repeating myself, the tailpiece was an effective provision in cases where the landlord was also the brewery which sold the beers to the tenant (the case for which the original precedent was obviously intended), but was an ineffective provision in a case where the landlord nominated a brewery to be the supplier, and it was the brewery which invoiced the tenant for its beer purchases. (It could have been different if there was an agreement between the landlord and the brewery that the brewery would charge full undiscounted list prices to the tenant, but in this case there was not.)

Where I do not agree with Mr Cogley is at the next stage of his argument, which is that, if the pricing provision in the tailpiece to clause (3) did not take effect according to its terms, that meant that the core provision for the tie in clause (1)(a) was unenforceable. In my judgment, however, the basic obligation under clause (1)(a) for the tenant to purchase its requirements from the landlord’s nominated supplier remains. If it is said that that leaves the tenant without protection as to the levels of prices which the nominated supplier may choose to charge, my comment is that that is a theoretical observation which has no true content in reality. As Mr Gerald said in oral submissions ‘You do not have to approach the lease on the assumption that the parties are going to approach it unreasonably.’ A commercial supplier of beer to outlets like pubs and clubs wants to maximise its sales, not to put its customers out of business by charging unrealistically high prices to them. Further, the present case demonstrates that, where the price formula in the tailpiece (the supplier’s undiscounted list prices) is not operated, the tenant is likely to benefit rather than suffer. For some years (the evidence did not disclose how many) John Smith's did not invoice the tenant at its full list prices. It invoiced the tenant at discounts below its full list prices, not at premiums above them.

I leave this particular argument by quoting a note which I made of one thing which Mr Cogley said in his oral submissions: ‘If (3)(a) goes and (1)(a) stays, my protection lies in Part 2 of the trial. But I say that (1)(a) goes as well.’ In my judgment (1)(a) does not go as well, but I entirely accept that Mr Cogley’s clients may be able to obtain a measure of protection from arguments under competition law, which is what Mr Cogley had in mind by his reference to Part 2 of the trial.

I move to another point. The tailpiece refers to the prices on the nominated supplier’s ‘current standard trade price list for the region …’. An argument on which the defendants laid a good deal of stress before the trial was that, according to them, there was no such thing as a standard trade price list. A lot of time was devoted to this issue in the course of the trial, and I will make some findings about it. But I first wish to say that I do not think that the issue was by any means as important as the time and effort devoted to it might suggest. The reference to the standard trade price list appears in the tailpiece to clause (3)(a), and I think that the defendants argument is that, because there was no such thing as a standard trade price list, the tailpiece could not take effect. The next step in the argument is that therefore the entire beer tie provision could not take effect. However, I have already said that, for another and more fundamental reason, the tailpiece could not (or at least might not) take effect, but that that did not mean that the basic tieing obligations in clause (1)(a) and (1)(b) were not binding. If I am right on that it does not make any difference whether or not there was a second reason (the alleged non-existence of a standard trade price list) why the tailpiece did not take effect.

Further, whether the Scottish & Newcastle companies had standard trade price lists or not, Carlsberg-Tetley does. Carlsberg-Tetley’s list is headed ‘Customer Price List’, not ‘Standard Trade Price List’, but that cannot make any difference. The words used in the lease (standard trade price list) do not begin with capital letters. It is not a defined term, nor is it a term of art. Rather it is a description of a document that performs a function. Carlsberg-Tetley’s Customer Price List performs that function, and if the existence of a document to perform the function is a pre-requisite of the beer tie provisions operating, the provisions are capable of applying as long as the nominated supplier is Carlsberg-Tetley. It would not prevent them from applying for there to have been a period in the past when they could not operate because the then nominated supplier did not have a document which performed the function of a standard trade price list. (In fact I do not think that there ever was such a period, but even if there was it does not make any difference now that Carlsberg-Tetley is the nominated supplier.) As I have said in a different connection, the beer tie provision is in force throughout the term of the lease. It does not somehow disappear from the lease if there has been a part of the term when, for some small print reason deriving from the tailpiece, it did not currently take effect.

In any case, if it matters, my conclusion on the basis of the evidence is that the Scottish & Newcastle companies did have lists which, though not entitled ‘standard customer trade price list’, performed the requisite function. It was clear from the evidence, and has in any event been seen by the courts in the numerous cases about beer ties in recent years, that the method by which breweries fix their prices to customers is by having price lists from which customers may or may not receive discounts of varying amouts depending on a range of factors. Tied customers tend not to be allowed discounts, or if they are, to be allowed only modest discounts. Free trade customers typically are allowed discounts, which can be substantial. The Court of Appeal said in paragraph 46 of its 1999 judgment in Courage v Crehan:

“It is well known that the price for beer actually charged to tenants of free houses is less than that charged to the tenants of tied houses. This proposition, which we did not understand to be disputed, is made good by the evidence of Professor Kay to the effect that discounts to free trade customers have been an established feature of the beer supply market, though the level of discount has increased, since 1990. Some compensation … is that the tied tenant pays a lower rent. In those circumstances it cannot have been intended that the price list should be determinative of the price charged to both tied and untied tenants alike as opposed to the benchmark from which, after the allowance of specific discounts, prices actually charged should be ascertained.”

The standard pricing method which the brewing industry adopts is of having a basic list of prices, but then fixing discounts on an individual case basis. There has to be a list of what the Court of Appeal called the ‘benchmark’ prices, otherwise the system could not work. The defendants’ witness statements were to the effect that the Scottish & Newcastle companies did not have standard trade price lists, but in my view the evidence to that effect was undermined by answers which some of the witnesses gave in cross-examination. For example Mr Robbins said (according to my note): ‘We receive price lists from John Smith's. If the prices change they send us another list.’ Mr Murray of John Smith's was shown a document and asked: ‘Is that document a price list provided by John Smith's North?’ His answer was : ‘A wholesale price list, yes’. My note (which probably conflates the questions and the answers) continues: ‘I accept John Smith's North has wholesale price lists. Part of what I say is we don’t have a document called Standard Trade Price List. I accept the wholesale price list is the document from which you fix discounts.’ Other documents emerged in the course of the trial on the basis of which this particular argument on behalf of the defendants virtually disappeared, apart from the irrelevant proposition that the lists which John Smith's used had headings which differed from ‘standard customer price list’.

Finally on the issue of whether the tenant was bound by the beer tie provision, Mr Cogley submitted that it was not bound, by reason of an implied term. I am not at all sure that there is any justification for implying any term into of the beer tie provision. The Court of Appeal in Courage v Crehan declined to accept implied term submissions advanced on behalf of Mr Crehan and other Inntrepreneur tenants. However, the contents of the implied terms which were unsuccessfully argued for in that case are not the same as those for which Mr Cogley argues here. Mr Cogley contends for an implied term that the power of the landlord under clause (9) of the beer tie provision to nominate a new nominated supplier must not be exercised ‘arbitrarily, capriciously or irrationally’.

For the purposes of this judgment I will assume, without deciding, that such a term could fall to be implied. However, I cannot see anything arbitrary or capricious or irrational about the landlord’s nomination of Carlsberg-Tetley in place of Matthew Brown or another Scottish & Newcastle group company.

Under the original arrangement back in 1991 P&S was entitled to nominate a supplier. It nominated Matthew Brown. In addition, as between P&S and Scottish & Newcastle there was an agreement that Scottish & Newcastle would pay to it discounts based on the tenant’s purchases. (In connection with the counterclaim Mr Cogley argues that P&S was accountable to the tenant for these discount payments, but for the purposes of the argument which I am considering now – an attack on P&S’s nomination of Carlsberg-Tetley in 2002 as a replacement nominated supplier – I must, I think, assume that the discount payments to the landlord were its own income which it was entitled to keep.) The flow of discounts to the landlord was a commercial benefit to it which it had every reason to expect to continue until the beer tie expired at the end of the lease. But in 2002 the tenant and Scottish & Newcastle put their heads together, and took steps which, if the landlord did nothing about it, took the commercial benefit away from the landlord immediately. The landlord’s purpose in exercising its power to nominate Carlsberg-Tetley in place of a Scottish & Newcastle company was to retrieve its former commercial benefit. The step is no doubt unwelcome to the tenant, but I do not think that it was arbitrary or capricious or irrational. As Mr Gerald put it: ‘the landlord was rationally looking after its own interests.’

The foregoing paragraph looks at the matter from the point of view of the landlord. If it is looked at from the point of view of the tenant a similar conclusion emerges. In 1991 the original tenant (Findextra) signed up to a lease which expressly contemplated (by the tailpiece to clause (3)(a)) that the tenant would be paying the nominated supplier’s full list prices. It is true that, for the reasons which I have explained, the tailpiece could not compel that result to follow, but it was a clear possibility and was presumably what the tenant expected. The tenant at the time must have known about it, and also knew (or ought to have known) that the same situation was likely to continue throughout the 20 years duration of the lease. The present tenant, VHL, is no doubt unhappy about the prospect of having to pay to Carlsberg-Tetley prices which are greater than the discounted prices which it is currently paying to John Smith's. However, VHL cannot be in any better position than Findextra would have been in if it had continued to hold the lease. So far as the level of beer prices payable by the tenant is concerned, all that the landlord’s nomination of Carlsberg-Tetley in place of the Scottish & Newcastle companies does is to reinstate what was always contemplated at the commencement of the lease. There is nothing arbitrary or capricious or irrational about that either.

I do not accept the implied term argument.

I have nothing more to say on whether, competition law apart, the tenant is bound by the beer tie provision. In my judgment it is.

The tenant counterclaims against the landlord for an account of the discounts which the landlord received from Scottish & Newcastle by reference to the tenant’s purchases of beer from Scottish & Newcastle subsidiaries. The claim is put on the basis that, in nominating Matthew Brown as the supplier of beer to the tenant, the landlord owed a fiduciary duty to the tenant; the landlord has benefited from what it did in the performance of its fiduciary duty, and must account for it to its beneficiary.

In my judgment the counterclaim cannot succeed (unless the issues about competition law, which I am not dealing with in this judgment, could make a difference). I make the initial observation that, if the argument was a sound one, it would presumably have been available to the claimants in much of the Inntrepreneur litigation. Under the Inntrepreneur structure the brewery companies made payments to the landlord (Inntrepreneur) by reference to the tenants’ beer purchases. In the numerous cases in which dissatisfied Inntrepreneur lessees have been advancing claims against the company a remarkably wide range of arguments has been put forward, but as far as I know it has not been argued that Inntrepreneur was a fiduciary and accountable to the tenants for the receipts which it got from the breweries. Mr Cogley, if I remember correctly, accepted that, if he was right in this case, a similar liability to account to the tenants may well have existed in the Inntrepreneur cases. However, I accept that the argument is not necessarily a bad one by reason of not having been raised in earlier cases.

In my judgment the reason why the counterclaim fails is because I simply cannot see the existence of a fiduciary relationship between P&S and the tenant for the time being of the bar. The principal transaction between the two of them was and remains the letting of a property for a premium and a rent. That was and is a commercial matter, and they were and are on opposite sides of the commercial relationship. I cannot accept that, as respects one element in this commercial transaction between two arm’s length parties, a fiduciary relationship arose. It is not as if the tenant was inexperienced in the licensed trade and asked the landlord to help it in finding a brewery supplier and in negotiating terms with the brewery on behalf of the tenant.

Mr Cogley drew my attention to English v Dedham Vale Properties Ltd [1978] 1 WLR 93. That, however, was a case in which a prospective purchaser of a property had applied for planning permission in the name of the vendor without telling the vendor what it was doing. The purchaser could fairly and accurately be described, as Slade J described the purchaser, as a ‘self-appointed agent’ for the vendor. As such the purchaser did owe fiduciary obligations to the vendor, and was liable to account for any profit made as a result of the self-appointed agency. I cannot see that, by the provision in the lease whereby the tenant was obliged to purchase beers from the landlord’s nominated supplier, the landlord appointed itself the agent to do something for or in the name of the tenant.

Mr Cogley also referred to the well known case of Reading v Attorney-General [1951] AC 507 and (in the Court of Appeal) [1949] 2 KB 232. A serving soldier, wearing his uniform, drove vehicles carrying illicit spirits and drugs, and by means of his uniform diverted the suspicions of the police. The criminals paid him something like £20,000. It was held that he was accountable to the Crown for the bribes. It was a case of fraudulent conduct and a plain breach of the duty which an employee owes to his employer. In my judgment the facts are too remote from this case for it to assist Mr Cogley’s argument.

Considering the argument more generally, I have made the point already that the relationship between a landlord and a tenant is a commercial one and not a fiduciary one (as Mr Cogley naturally accepts is normally the case). The relationship between P&S and its tenants of the bar was and remains a commercial one. I cannot see that this particular element of this lease, whereby the tenant had to buy its supplies of beers from a supplier nominated by the landlord, can somehow be lifted out of the general commercial setting and categorised as the landlord assuming fiduciary obligations to the tenant.

My view in that respect is reinforced by the feature that clause (1)(a) of the beer tie provision provides alternatives. Either the tenant must buy its supplies of beer from the landlord at the landlord’s list prices, or it must buy them from the landlord’s nominated supplier at the nominated supplier’s list prices. If the first alternative had applied there would in my view be no room for an argument that the landlord owed fiduciary obligations to the tenant. It would be most incongruous if it was somehow different when, as was the case, the second alternative applied. The nominated supplier plainly would not owe any fiduciary duties to the tenant, and it would be extraordinary if the landlord would. A straw in the wind in the same direction is that the nominated supplier is described as ‘the landlord’s nominated supplier’. It is, so to speak, on the same side of the fence as the landlord. Either the tenant deals with the landlord alone, in which case contractual obligations arise but fiduciary duties do not; or the tenant at the direction of the landlord deals with the landlord’s nominated supplier (not ‘a nominated supplier’, but ‘the landlord’s nominated supplier’), in which case it would still be the position that contractual obligations arise but not fiduciary duties do not. Fiduciary duties should no more arise in the second case than in the first.

I am not sure whether there are arguments of competition law which could support the counterclaim. In the circumstances I do not say now that I dismiss the counterclaim. I would, however, dismiss it if it depended solely on the fiduciary duty argument which, attractively though it is put, I do not accept.

I said in the Overview at the start of this judgment that I would not direct an enquiry as to damages on this aspect of the claim, because the facts are obscure and I cannot be satisfied on the balance of probabilities that any liability exists. In this part of the judgment I say a little more about this. I confess that I feel uncomfortable about it. It is, not to put too fine a point on it, a messy part of the case, and I am conscious that the defendants may be getting away with something. The issue depends essentially on what Mr Robbins arranged about supplies of Budweiser. He might have been making purchases in breach of the tie (and knew it), or he might not. A major difficulty is that, because Peter Stefani died, he is not able to give evidence. There is no paper trail of documentary evidence that provides any real help. I would like to add that, if Mr Robbins was indeed making purchases of Budweiser in conscious breach of the tie, I have absolutely no evidence that Mr Valentine or his son Gavin knew anything about it, and I do not think that they did. They disliked the tie, particularly so when they learned that one consequence of it was that the landlord was receiving discounts from the brewery, but I do not think for a moment that they would have dishonestly tried to cheat their way around the tie.

It is, I think, accepted by the defendants (or by Mr Robbins on their behalf – he having been the person who was regularly present and managing the bar) that from time to time supplies of Budweiser came into the bar which had not come from the landlord’s nominated supplier, Matthew Brown or John Smith's. Those supplies came from a local wholesaler the identity or the name of which seems to have changed from time to time, but which has mostly been referred to as Fylde Wines. Mr Robbins accepts that bottles of Budweiser were sometimes supplied by Fylde Wines, though I did not get any sense of how large or small the quantities so supplied were. However, Mr Robbins says that they were not supplies in breach of the tie. Three different reasons why not were put forward, and one of the matters that cause me to feel uncomfortable is that I am not clear whether Mr Robbins says that all three happened at different times, or whether he has changed his evidence. The three explanations were, in summary, as follows.

On the third of those explanations, which was the main one advanced at the trial, Mr Gerald accepts that, if Peter Stefani did in fact agree orally that the tenant could buy Budweiser from Fylde Wines outside the tie, there could be no breach of the tie as respects any consequential purchases, and thus no damages. He invited me, however, to reject Mr Robbins’ evidence and to find positively that the tenant had made purchases of Budweiser from Fylde Wines in conscious breach of the tie. Mr Gerald might be right, but I ask myself whether I am sufficiently convinced to find that, notwithstanding Mr Robbins’ evidence, P&S has established this part of its case sufficiently for me to find that, on the balance of probabilities, the claim for damages has been made out. The answer is that I am not. Mr Robbins was a somewhat erratic witness, but he did not strike me as in any way a devious or mendacious witness. Maybe he was lying about this, but I think that he probably was not.

The other part of the claimants’ case on this issue was evidence from Peter Stefani’s sons and his accountant that Peter Stefani never told them that he had agreed with Mr Robbins that the tenant could buy Budweiser outside the tie. That is a factor which carries some weight, but not a lot. I do not think that it is enough to get the claimant home on the issue.

The matters which I have described in the previous paragraphs are my reasons for not directing an enquiry as to damages for purchases of Budweiser in breach of the tie.

I believe that I have now dealt with all the matters which need to be covered in this judgment. I have no further observations to make.