Decision

Award Summary – August 2019 - 4

Published 21 May 2021

Applies to England and Wales

Award Issued: 2019

Publisher’s Note: The Pubs Code Adjudicator encourages openness and transparency in the operation of the Pubs Code etc. Regulations 2016. Publication of awards made in Pubs Code arbitrations, or summaries of those awards, enables the industry to better understand previous decisions and consider how the Pubs Code is being applied in individual cases. Neither the Pubs Code Adjudicator nor an arbitrator is bound to follow published awards in applying the law, but such awards can be used to support the industry’s consideration of the proper interpretation of the Pubs Code. Parties are encouraged to take independent professional advice about their situation.

The outcome of an arbitration is based on its own facts and the evidence produced in the case and is not binding in other cases where the landlord and tenant are not the same. The Pubs Code Adjudicator does expect a regulated pub-owning business to consider its understanding of the law in light of each award that makes a finding on the interpretation of the statutory framework and to adjust its behaviour towards tenants as appropriate. The publication of an arbitration award or an award summary does not mean the Pubs Code Adjudicator endorses the decision and it does not form legal advice about any issue.

This summary is provided to assist in understanding the arbitration decision. It does not form part of the decision or reasons for the decision. Since this arbitration referral, the PCA has issued Guidance on Beer Waste and Duty which came into effect from July 2019.

1. Summary of the Findings

The dispute related to whether the pub-owning business (“POB”) had sent the tied pub tenant (“TPT”) a rent assessment proposal (“RAP”) that complied with the information requirements under Schedule 2 of the Pubs Code (“the Code”).

The arbitrator found that:

• The POB did provide the required information on the amount of duty paid on beer but failed to provide the required information on cask sediment allowances.

• All this information was reasonably available to the POB, which did not give good and justifiable reasons for its failure.

• The POB’s approach did not invalidate the RAP.

2. Factual Background

2.1 Information required under Schedule 2

The TPT made a referral to the PCA claiming that the RAP was not compliant with the Code because the POB failed to carry out the calculation in Schedule 2(5)(c). That is, the volume of alcohol in respect of which duty was paid during the last 3 years (if different to the volume of alcohol purchased from the POB for that same period).

The TPT argued that the POB’s presentation of sediment and wastage in the RAP did not appear to conform with any existing regulation. They added that HMRC was clear that any volume in excess of the amount on which beer is duty paid is undrinkable sediment. The TPT considered the POB had presented a higher volume of beer than that which the brewer who supplied them had declared. As a result, the TPT believed they had been misled in relation to price and shareable gross profit.

The TPT said the POB’s failure to disclose information which they considered was available to it, was a breach of the core Code principle of fair and lawful dealing.

The POB argued that its RAP provided full details of the total alcohol delivered to the TPT with a clear statement that it was all “duty paid”. The POB admitted the RAP did not provide an analysis of the volume of alcohol delivered on which it had claimed a cask sediment allowance. But it said that it would not have been reasonably practicable to have done such calculations as it had not kept track of the fluctuations in allowances.

2.2 RAP or Rent Proposal

The TPT argued that there was nothing in the correspondence to indicate the proposal was a RAP. As such, they claimed the POB had breached the requirement to provide Schedule 2 information under both regulation 16(1)(c) in relation to a rent proposal and regulation 20(1)(b) in relation to a RAP.

Both parties agreed that regulation 20(1)(b) applied in relation to a RAP, requiring Schedule 2 information to be provided if reasonably available to the POB. The POB argued that the proposal clearly indicated it was a RAP and added that regulation 16 did not apply (because none of the circumstances in regulation 15 in which a rent proposal had to be served existed in this case).

2.3 Impact of missing information on validity of RAP

The POB argued that a failure to provide any or all the information in Schedule 2 (which was in any event denied) would not invalidate the RAP. It said this was because:

• regulation 20 of the Code did not provide that a RAP was invalid if any information under Schedule 2 was missing;

• certainty was required as to the provision of a RAP because this triggered the start of a Rent Assessment under regulation 21(1) and the receipt of a RAP is a Market Rent Only (MRO) event under regulation 27; and

• regulation 21(3) allowed the TPT to request further information during the rent assessment process.

3. Arbitrator’s Findings

3.1 Whether the required information on the amount of duty paid on beer was reasonably available to the POB at the time it provided the RAP to the TPT

The arbitrator found that (other than in respect of cask sediment allowance as below) the information on the amount of duty paid on beer was available to the POB, and that it had provided the details to the TPT at the time of the RAP.

3.2 Whether the POB provided good and justifiable reasons for its failure to provide the required information relating to cask sediment allowances and wastage

The arbitrator found that the POB could have at least provided an educated estimate of the figures relating to the cask sediment allowance for the products which the POB had supplied to the TPT over 2 or 3 years. They found that this information had been available to the POB at the time it sent the RAP.

3.3 Whether the proposal was a RAP or a Rent Proposal

The arbitrator agreed with the POB that the correspondence was clear it was a RAP in relation to a forthcoming rent review. They added that since this case concerned a rent review under an existing lease, regulation 16 did not apply.

3.4 Whether the POB’s approach invalidated the RAP

The arbitrator agreed with the POB that it is only obliged to provide information in Schedule 2 if it is reasonably available to it. But the arbitrator acknowledged they had found that the sediment allowance information was reasonably available.

Even so, the arbitrator decided that the POB’s approach did not invalidate the RAP. The arbitrator did not consider that the specific Code requirements and core Code principle of fair and lawful dealing meant that the RAP should be invalid just because relatively minor information was omitted (and where in this case the TPT was aware of the issues).

They noted the expectation that there would be negotiations in the rent review process and that the RAP is a means to initiate those negotiations. The arbitrator added that it was possible for the TPT to request further information about the sediment allowance and there was no reason to assume the POB would not have provided it upon request.

The arbitrator also concluded that the TPT had not suffered in rental terms because of the initial sediment allowance information being omitted, as these allowances were later taken into account in an arbitration award on the rent.

3.5 Whether the POB could be ordered to provide a valid and compliant RAP if the RAP is deemed invalid

The arbitrator noted that as they had not found the RAP to be invalid, the answer to this question was of no consequence in the present case and was only provided for guidance. They noted that there was no provision for serving a second RAP under the Code, but that this must be envisaged if the initial RAP is found to be invalid otherwise the right to a rent review would be lost. The arbitrator refrained from determining whether any such second RAP would give rise to the rights to serve a MRO notice.