Decision

Award Summary – January 2021 - 3

Published 5 January 2022

Applies to England and Wales

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 statutory advice on the time limit for referring a non-MRO dispute to the PCA for arbitration, which can be read here.

1. Summary of Findings

This arbitration award was about whether the Tied Pub Tenant (“TPT”) had made their referral in time. The arbitrator found that the TPT’s referral was not time-barred under section 49(4) of the Small Business, Enterprise, and Employment Act 2015 (the “2015 Act”) and was not “out of time”.

2. Background

The TPT has a lease of a public house which started prior to the commencement of the Pubs Code.

In March 2019 the Pub Owning Business (the “POB”) sent a Rent Assessment Proposal (“RAP”) in connection with a rent review as required by Regulation 19(1)(a) of the Pubs Code. The rent review was agreed with the TPT in a signed rent review memorandum in February 2020 (the “Memorandum”) which ended the rent assessment process.

In April 2020 the TPT gave notice to the POB that they considered the RAP to be non-compliant with the Pubs Code regulations and gave the POB a 21-day notice of intention to refer the matter to the Pubs Code Adjudicator (“PCA”) for arbitration if the POB did not “concede liability”.

The POB did not respond to the 21-day notice, and the TPT made a referral for arbitration to the PCA in May 2020 raising the issue of alleged non-compliance with the Pubs Code and/or breach of the principle of fair and lawful dealing.

3. Relevant Legislation and Rules

Section 49 of the Small Business, Enterprise, and Employment Act 2015 (the “2015 Act”) provides that a TPT can only refer a dispute after the expiry of the period of 21 days beginning with the date on which the TPT notifies the POB of the alleged non-compliance. Section 49(4) also prohibits disputes being referred to arbitration more than 4 months after the date the dispute could have been referred.

The overarching legislation is the Limitation Act 1980 (“the 1980 Act”). However, the 1980 Act will not apply in the event that an alternative limitation period is prescribed under any other statute such as the Pubs Code and / or the 2015 Act.

4. Issues

The TPT argued that:

1. the March 2019 RAP was not compliant with Regulation 20 and/or Schedule 2 of the Pubs Code;

2. the actions of the POB were a breach of fair and lawful dealing under Section 42(3)(a) of the 2015 Act; and

3. the POB should therefore be directed to provide a new RAP.

The POB argued that the TPT’s referral was out of time under section 49(4) of the 2015 Act, and that the arbitrator therefore did not have jurisdiction to determine whether the RAP is compliant or whether the actions of the POB are a breach of fair and lawful dealing.

5. Time Limit

The POB argued that the referral was more than 12 months after the first date on which the dispute could have been referred (i.e. following service of the RAP in March 2019) and was therefore time-barred pursuant to Section 49 of the 2015 Act. The POB argued that as the RAP was out of time, the arbitrator did not have jurisdiction to determine the issue of the alleged Pubs Code breaches. The POB also stated that it was for the TPT to show (i.e. had the burden of proof) that the referral was not time barred.

In response, the TPT argued that a matter can only be referred when a TPT has sufficient knowledge to make a referral. The TPT submitted that their ability to act upon the knowledge was only acquired after the signing of the Memorandum in February 2020. Therefore, the referral in May 2020 (less than 4 months after that date) was in time. The TPT sought to rely on section 14 of the 1980 Act, arguing that the time to bring a case cannot run until the person affected by the action has discovered it.

The POB submitted that section 14 of the 1980 Act is irrelevant to the Pubs Code and/or the 2015 Act. Section 39 of the 1980 Act allows alternative limitation periods and Section 49 of the 2015 Act provides such an alternative. The POB argued that the 1980 Act does not apply and is overridden by section 49(4) of the 2015 Act. The POB further argued that the time limit should not be interpreted as providing an open-ended liability for TPTs to make referrals without limitation of time.

The fundamental distinction between the parties’ arguments was that the POB interpreted the “first date on which the dispute could have been referred” as the date of service of the RAP. However, the TPT argued that section 49 should be interpreted as allowing the TPT 4-months in which to make a referral from the point at which it could have referred the issue and submitted that they could only have made a referral after they had the knowledge which formed the basis of the alleged non-compliance. The TPT gave 21 days’ notice as soon as they knew about the issue and made the referral within four months of the notice.

6. Arbitrator’s Findings

The arbitrator held that the TPT’s referral was not time-barred and was not “out of time”. The arbitrator therefore determined that they did have jurisdiction to proceed with the referral and to consider the further issues which would then be determined in a Final Award, if the parties had not come to an agreement about the matter.

The arbitrator did not accept the POB’s submission that the burden of proof in relation to the Section 49 issue rested with the TPT. The arbitrator found that as the POB asserted that the referral was out of time, it was the POB who had the burden of proof in establishing that the referral had been made out of time.

The arbitrator broadly agreed with the TPT’s interpretation of section 49, but did not agree the use of the word “could” in section 49(4) related to the state of the TPT’s knowledge. The arbitrator instead considered that the use of the word “could” related to 21 days after the notification to the POB; that being the first date on which the TPT could make the referral.

The arbitrator provided three further reasons why they considered that the POB’s case was not attractive:

1. If the 4-month period ran from the date a RAP is sent, a s.49(2) notification of alleged non-compliance would need to be given at least 21 days before the expiry of 4 months, effectively reducing the limitation period to less than 4 months.

2. If the TPT must actively consider possible non-compliance with the POB’s obligations under the Pubs Code in a short 4-month period triggered at the choosing of the POB then this would create an imbalance between the POB and TPT.

3. The process would encourage the parties to commence referral, but this is at odds with the intention of the 2015 Act and the Pubs Code which is to provide the TPT with protection, not to encourage disputes and arbitration.

The arbitrator concluded that sections 48 and 49 of the 2015 Act created a two-stage referral process comprising firstly the TPT giving notification of the alleged non-compliance with the Pubs Code to the POB and then secondly the referral of the disputed allegations of non-compliance for arbitration.

The referral cannot be made until at least 21 days after the date of notification to the POB. The referral may then be made by the TPT on a date of its choosing, but no later than 4 months after the 21st day following the notification (that being the first date on which the dispute can or could be referred).

The arbitrator did however confirm their agreement with the POB that the 1980 Act was not relevant, and that owing to the two-stage referral process the date of acquisition of such knowledge was not relevant.