Decision

Award Summary - November 2023 - 1

Published 31 January 2025

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.

This summary can be read in conjunction with this Pubs Code Action Story link here for information about Star’s conduct during the arbitration and self-reported breaches of regulation 46 relating to premises insurance.

Summary of Award

1. Summary of findings

The tied-pub tenant (the TPT) referred a dispute to Arbitration in relation to alleged breaches of the Pubs Code Etc. Regulations 2016 (the Pubs Code) which took place during the course of a tied lease entered into in 2018 (the Tied Lease) between the TPT and a Pub Owning Business (the POB). The Arbitrator found in favour of the POB on all counts owing to the TPT’s claims being variously time-barred and without merit. This summary of the award does not include the Arbitrator’s award in respect of costs.

2. Factual background

In April 2022, the TPT made several non-market rent only complaints against the POB including outstanding building works, compliance issues, insurance issues, and an alleged requirement to purchase gaming machines. In addition, the TPT raised concerns about tied product prices which arose as a consequence of the Tied Lease.

The TPT made a formal referral to the Pubs Code Adjudicator (the PCA) in November 2022. A statutory arbitration commenced under Part 4 of the Small Business Enterprise and Employment Act 2015 (the SBEEA) and in accordance with the Pubs Code.

3. Issues

The following issues were considered by the Arbitrator, together with procedural issues as to the burden of proof, applications to strike out, and limitation dates:

1. Whether the cost of the electricity required to operate flow meters not being covered by the POB breached the principles of fair and lawful dealing.
2. Whether the retail cost of the POB taking samples of drinks products from the premises not being credited to the TPT breached principles of fair and lawful dealing.
3. Whether pricing differences which disadvantage the TPT in comparison to operators of free of tie sites stocking similar brands breached the principles of fair and lawful dealing.
4. Whether multiple supervisory visits performed by the POB breached the Pubs Code.
5. Whether the POB’s business development manager (BDM) was in breach of the Pubs Code by allegedly telling the TPT in April 2018 that their rent would increase if the TPT refused to install gaming machines.
6. Whether the POB breached the Pubs Code by failing to provide adequate information about insurance premiums.

4. The relevant legislation

S49(2) of SBEEA provides that a dispute may not be referred until after the expiry of the period of 21 days beginning with the date when the TPT notifies the POB of alleged non-compliance.

S49(4) of SBEEA provides that a dispute may be referred to the PCA after the expiry a four-month period beginning with the first date on which the dispute could have been referred.

Reg 13(9) of the Pubs Code provides that the POB must not, unless in an emergency, enter the pub without giving the TPT reasonable notice.

Reg 41(1)(c) of the Pubs Code provides that a POB must ensure that its BDMs deal with TPTs in a manner consistent with the principle of fair and lawful dealing referred to in S42(3) of SBEEA.

Reg 46(2) of the Pubs Code provides that the POB must inform the TPT whether the insurance charge exceeds the amount payable by the POB in respect of premiums for insurance relating to the Pub premises under the insurance policy and, if so, the amount of that excess. In addition, the POB must inform the TPT if the POB receives, or expects to receive, any commission or rebate in connection with that policy.

Reg 46(3) of the Pubs Code provides that before the POB purchases or renews its insurance policy, the POB must provide full details of the policy, any charges payable and contributions which the TPT is required to make to it, and provide the tenant with additional information required to allow the TPT to compare the policy with other suitable and comparable policies.

Reg 47 of the Pubs Code provides that a POB must not enter into a new tenancy or licence; or renew a tenancy or a licence, which requires a tied pub tenant to purchase or rent gaming machines.

Arbitrator’s Findings

After considering the parties’ written submissions, the Arbitrator found as follows:

Issue 1 - Whether the cost of the electricity required to operate flow meters not being covered by the POB contravened the principles of fair and lawful dealing

The Arbitrator acknowledged that this complaint was a relatively small provision within the terms of the Tied Lease. In addition, the Arbitrator did not find the POB had breached the Pubs Code principle of fair and lawful dealing since the POB had refunded the TPT the modest cost of the electricity required to operate the flow meters since the commencement of the Tied Lease.

Issue 2 - Whether the cost of the POB taking samples of drinks products not being credited or provided on completion of those samples constituted a breach of fair and lawful dealing

The Arbitrator considered whether the POB’s failure to credit or reimburse the TPT for the retail cost of the POB taking samples of drinks breached the Pubs Code. The Arbitrator did not find the POB was in breach of the Pubs Code given that the POB had confirmed that it had by the time of the arbitration refunded to the TPT the modest monetary value of the samples.

Issue 3 – Whether the TPT’s complaint about pricing issues disadvantaging the tenant in comparison to free of tie sites stocking similar brands breaches the principles of fair and lawful dealing

The Arbitrator found in favour of the POB on this point since the POB provided evidence that they explained to the TPT that the headline price in the free of tie model does not include variables such as reduced entry costs, support, and other economies of scale. Referring to the PCA publication “PCA Advice Note: Timing of referral for arbitration by tied pub tenants (non-MRO disputes)” (as updated on 8 June 2023) and applying s 49(4) of SBEEA, the Arbitrator also found this claim had been made out of time.

Issue 4 - Whether the multiple supervisory visits breached reg 13(9) of the Pubs Code

The TPT claimed that contractors of the POB entered the TPT’s pub without giving reasonable notice under non-emergency conditions. The POB did not dispute that unannounced visits had been made in accordance with the conditions of the Tied Lease which provide for “Challenge 25” audits to take place, and also that it had arranged for unannounced ‘mystery diner’ visits to take place too. The Arbitrator found that, because the complaints were raised formally in April 2022, this part of the claim was out of time under s 49(4) of SBEEA.

Issue 5 - Whether the POB’s BDM was in breach of the Pubs Code by telling the TPT in April 2018 that their rent would increase if the TPT failed to install gaming machines

Reg 47 of the Pubs Code prohibits a POB from entering a tenancy requiring a TPT to purchase or rent gaming machines. The TPT claimed that a conversation took place regarding gambling machines and that the TPT was required to install such machines otherwise their rent would increase. The Tied Lease was negotiated on the basis that it permits (but does not require) two gaming machines, and the Arbitrator found that there were no words contained within the Tied Lease that required the TPT to purchase or rent any gaming machines. In addition to finding the claim was not proven, the Arbitrator found this part of the claim was out of time under s 49(4) of SBEEA.

Issue 6 - Whether the POB breached regs 46(2) and 46(3) of the Pubs Code by failing to provide insurance details

The Arbitrator reviewed the evidence as to whether the POB failed to provide an annual report in relation to the premiums collected and whether such sums exceeded the cost of insurance. The Arbitrator found that, on the balance of probabilities, and based on all the evidence presented at the time of the arbitration, the POB was not in breach of the Pubs Code. In addition, the Arbitrator found that this part of the claim was out of time under s 49(4) of SBEEA.

As outlined above, the Arbitrator found that all of the TPT’s claims were unproven. 

Procedural issue – Burden of Proof in Pubs Code disputes

The issue of who had to prove each allegation was a recurring theme throughout the arbitration. The Arbitrator clarified that whilst arbitration awards are not binding on other arbitrations, decisions made by the Courts are legally binding. The Arbitrator relied on a case where it was held that the burden of proof rests with the TPT to prove their case in a Pubs Code dispute – see Punch Partnerships v Jonalt [2020] EWHC 1376 (Ch). However, the Arbitrator also found that the decision in the Jonalt case did not prevent the POB from proving any arguments they made in their defence.

Procedural Issue – The POB’s request to strike out the TPT’s Claim

In the POB’s defence, they requested that the Arbitrator strike out the TPT’s referral on the basis of the TPT not having complied with the Arbitrator’s directions. The Arbitrator made a finding that, in accordance with ss33(1)(a) and (b) of the Arbitration Act 1996 (the 1996 Act), the Arbitrator is required to adhere to its duty of fairness. The Arbitrator took into account that the TPT was self-represented and found that to dismiss the claim before the TPT had been afforded a reasonable opportunity to provide replies would be premature and procedurally unfair. The Arbitrator therefore proceeded to deal with each of the TPT’s claims in turn (as above).