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The beer tie and competition law

This page provides information on the application of EC and UK competition law (especially Article 81) to the "beer tie" arrangements present in many leases for tenanted public houses in the UK.

A pub lease with a beer tie is an agreement by which a landlord, usually a specialist pub management company (also known as a pubco) or a brewery, leases a pub's premises to a tenant who operates the pub business (as a self-employed trader or through a small company), where the lease incorporates some obligation on the tenant to source some or all of the beer sold on the premises from the landlord (or a supplier nominated by the landlord), and/or a prohibition on sourcing beer or other goods from other suppliers.

There have been several changes of relevant law and precedent-setting cases in the past 20 years, making it somewhat difficult to assess the exact position that prevailed and/or that was believed to prevail at any particular time. This page is organised in reverse chronological order of the main documents or events from the 1980s to 2006, followed by some other links.

The information on this page covers only a fraction of the subject matter; all contribution of relevant information or links will be gratefully received. Click the "Edit this page" button above to edit the text.

References to Article 81 and Article 82 on this page are to the 1997 consolidated version of the EC Treaty. Information about some terms and organisations referred to in the text can be found in our Glossary.

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2007

9 August 2007: Crehan: Inntrepreneur to recover costs from legal aid funds

High Court judgment (about 19 pages) awarding Inntrepreneur its costs in the Court of Appeal to be paid from the legal aid fund. The judgment reports the costs order made in the House of Lords. A further case about recovery of Inntrepreneur's costs in the House of Lords has yet to be heard (but there is no obvious reason why the answer should be different).

2006

19 July 2006: Crehan loses

House of Lords judgment (about 22 pages) allowing Inntrepreneur's appeal against the 2004 Court of Appeal judgment which had given damages to Bernard Crehan, a former pub tenant, for breaches of Article 81 by the landlord's beer tie. The Lords judgment finds that the Court of Appeal had been wrong to rely on the Commission's decision on the Whitbread case as if it were a precedent for Inntrepreneur beer ties, and restores the 2003 High Court judge's own assessment of the facts and his conclusion that the relevant Inntrepreneur beer tie arrangements did not infringe Article 81. Given this finding on liability, none of the opinions comment on the question of whether someone in Mr Crehan's position would have been entitled to damages if a breach of Article 81 had been proved.

26 June 2006: P&S Amusements tenant loses in the High Court

High Court judgment against the tenant in the P&S Amusements case (see 2 February 2006). The judge summarily dismissed the Competition Act 1998 defences, finding that:

6-13 June 2006: House of Lords hearing in Crehan case

The Publican reports that the House of Lords hearings in the Crehan case (an appeal by the landlord against the Court of Appeal judgment of 21 May 2004 awarding damages to the tenant under Article 81, which is a test case for other ex-Inntrepreneur tenants with Courage ties) will take place between 6 and 13 June 2006.

Previous reports in The Publican had noted funding issues for Mr Crehan's legal costs, despite assistance from the Lord Chancellor and the landlord, and third-party submission to the Lords by the OFT and by VISA (which are currently fighting a separate Article 81 case over the central setting of credit card interchange fees).

A subsequent Publican article reports that the Lords decided not to hear submissions about the quantification of damages. The claimant's lawyers suggests that this may point to another reference to the European Court of Justice before the case is resolved.

By way of background, the Judicial Committee of the House of Lords is obliged under the EC Treaty to refer any question of EC law that arises to the ECJ, whereas the lower courts have a choice between taking their own view on points of EC law or making a reference. In this case, the Court of Appeal had said that "neither side requested us to make a reference to the ECJ under Art. 234 of the Treaty and we have not found it necessary to do so". One issue of EC law that the Court of Appeal determined without perfect ECJ authority was whether Mr Crehan's loss was of a kind for which EC competition law provides a remedy for (i.e., using US terminology, whether it was an antitrust injury). Inntrepreneur had argued that it was not, because Mr Crehan had not suffered from the fact that beer ties made it difficult for new brewers to enter the UK market, whereas it was only that difficulty (foreclosure effect) which led to illegality of the beer tie under Article 81(1). The Court of Appeal agreed with the trial judge that the 2001 ECJ ruling could be taken to imply that, despite this, Mr Crehan was entitled to a remedy under EC law for this type of loss.

2 February 2006: Preliminary High Court judgment in P&S Amusements case

In this judgment (about 16 pages) Mr Justice Park of the Chancery Division of the High Court in London found that a beer tie in a lease between an independent landlord and a Blackpool tenant, requiring the tenant to source beer from a supplier nominated by the landlord, was valid and enforceable, subject to competition law defences raised by the tenant (which are not detailed in the judgment, and have yet to come to trial). The landlord's request for an injunction to secure compliance with the tie was denied pending trial of the competition law issues.

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2005

20 July 2005: OFT rejects the idea of a new inquiry into the supply of beer

In a short statement, the OFT rejected the Competition Commission's suggestion (see 11 March 2005) of a new inquiry into the supply and distribution of beer to pubs.

26 May 2005: Allegations of abuse of a dominant position against Greene King

Letter from Maitland Walker (Rupert Croft, who is also Mr Crehan's solicitor) to Greene King, published in The Publican, alleging abuse of a dominant position through excessive beer prices to tenanted tied pubs in Oxfordshire which were said to place tenanted pubs at an unfair competitive disadvantage to Greene King's managed houses. The case was subsequently reported to have run into funding difficulties.

1 May 2005: Repeal of vertical exclusion

The Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004, which repeals the exclusion of vertical agreements from the Competition Act 1998, came into force on 1 May 2005 (one year after Council Regulation 1/2003). From that date restrictive agreements should be treated in the same way irrespective of whether they are capable of affecting international trade within the EU.

11 March 2005: Competition Commission suggests a new inquiry

At paragraph 37 of its report (63 pages, PDF) prohibiting the merger of Serviced Dispense Equipment Limited (SDEL) with Coors' technical services function (ownership and maintenance of draught dispensing equipment), the Competition Commission stated that:

"We noted, in particular, that the prices for the supply of technical services equipment and technical services were almost always bundled with the price of a barrel of beer. We believed that bundled pricing might lead to potential distortions in the markets for the supply of beer, technical services and technical services equipment. We therefore suggested that the OFT considers whether a market investigation into the pricing or supply of beer [...] might be appropriate."

A variety of documents related to this merger inquiry can be found on the Competition Commission website.

8 March 2005: Government and OFT responses to Select Committee report

The Government response (6 pages, PDF) to the Select Committee report includes:

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2004

8 December 2004: Trade and Industry Select Committee report on pub companies

The report (several web pages) of the Trade and Industry Select Committee of the House of Commons on pub companies (and associated evidence and submissions) was published. This provides a review of the economics of the beer tie with particular reference to (non-brewer) pub companies, and recommends action by the Government and the OFT to protect tied tenants.

21 May 2004: Crehan: Court of Appeal judgment for tenant

The Court of Appeal handed down its judgment (about 36 pages, HTML) in the Crehan case, reversing the High Court judge's earlier finding (see 26 June 2003) that the lease did not infringe Article 81(1), replacing it with a finding that the lease was invalid under Article 81, and awarding damages to Bernard Crehan.

1 May 2004: Direct effect of Article 81(3)

Council Regulation 1/2003 came into force on 1 May 2004. This abolishes the system of individual exemption under Article 81(3): instead restrictive agreements in the sense of Article 81(1) are no longer prohibited and void if they satisfy the Article 81(3) conditions. The OFT also acquired greater powers to enforce Article 81 and Article 82 in the UK.

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2003

26 June 2003: Crehan: High Court judgment for landlord

Mr Justice Park in the Chancery Division of the High Court in London handed down his judgment (about 80 pages, HTML) on Bernard Crehan's claim for damages against his former landlord. The judge accepted that the beer tie had been the cause of Mr Crehan's business failure, and that he would have been entitled to damages if the lease had been illegal under Article 81.

But he found that the lease had not infringed Article 81, relying on his own analysis of the facts, drawing on expert evidence presented by the parties. This part of the judgment was reversed by the Court of Appeal (see 21 May 2004) but restored by the House of Lords (see 19 July 2006).

27 March 2003: OFT rejects FSB complaint

The OFT's letter to the Federation of Small Businesses rejecting a request for an investigation into pub companies does not appear to be available online. The OFT has explained this decision in its evidence (about 6 pages) to the subsequent Trade and Industry Select Committee inquiry (see 8 December 2004). On the Article 81 prohibition, the OFT took the view that there had been sufficient European Commission scrutiny of the arrangements, and that application of the Competition Act 1998 was probably largely precluded by the then vertical exclusion. On the Article 82 prohibition, the OFT considered that the fact that overall UK market shares of landlords were below 40 per cent was a reason not to investigate any possible abuse. On the Enterprise Act 2002, the OFT thought that "competition appears to be working".

January-February 2003: Repeal of Beer Orders

The Supply of Beer (Tied Estate) (Revocation) Order 2002 came into effect on 17 January 2003, and The Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) (Revocation) Order 2003 came into effect on 10 February 2003, repealing the 1989 Beer Orders.

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2002

21 March 2002: Appeal against Whitbread Article 81(3) clearance fails

Court of First Instance judgment (about 25 pages, HTML) rejecting a challenge to the 1999 Commission decision to clear Whitbread beer ties under Article 81(3).

February 2002: Government decision to repeal the Beer Orders

Following the emergence of pubcos such as Enterprise Inns and Punch as the main landlords of tied pubs (instead of breweries), DTI Minister Melanie Johnson announced on 19 February 2002 her intention to repeal the Beer Orders. A statement of reasons for the repeal was given in Parliament in May 2002.

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2001

20 September 2001: Crehan: ECJ judgment on right to damages

This judgment (about 7 pages, HTML) of the Court of Justice of the European Communities established Mr Crehan's right to damages if he could establish that his beer ties infringed Article 81 and that this had caused his business failure. This was a reversal of the view taken by the High Court judge in 1998.

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2000

December 2000: Bridgeman report on the Beer Orders

Report (68 pages, PDF) by the former OFT Director General John Bridgeman on the Beer Orders. The report recommended the abolition of the Beer Orders with the exception of some provisions related to loan ties.

29 June 2000: Article 81(1) clearance of multi-sourcing pub company beer ties

In this decision (about 13 pages, HTML) the European Commission took the view that new terms for tied leases notified by Inntrepreneur and Spring Inns did not infringe Article 81(1) (and therefore that no question of justification under Article 81(3) arose). The main reason for this finding was that the pub companies in question had a policy of sourcing beer from multiple brewers and therefore the Delimitis tests (of foreclosure of a brewing market) were not satisfied.

1 March 2000: Competition Act 1998

The key provisions of the Competition Act 1998 came into force on 1 March 2000. This introduces prohibitions equivalent to Article 81 and Article 82 on matters which affect trade within the UK but do not affect international trade within the EU, subject to a vertical exclusion which removes most vertical agreements (including most beer tie arrangements) from the UK prohibition.

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1990s

22 December 1999: New vertical block exemption

Commission Regulation 2790/1999 (5 pages, PDF) established a new regime for allowing certain vertical restraints, including some beer ties, subject to market share thresholds which (in the Commission's view) ensure that the Article 81(3) conditions are likely to be satisfied.

A subsequent Commission notice (44 pages, PDF) explained the Commission's interpretation of the block exemption.

16 July 1999: Crehan: Court of Appeal reference to the European Court of Justice

The text of the Court of Appeal order making a reference to the European Court of Justice was not found on any free online services.

15 July 1999: Passmore loses

House of Lords minute noting that David Passmore's application to appeal against the Court of Appeal judgment of 2 February 1999 has been refused.

16 June 1999: Article 81(3) clearance for Scottish & Newcastle and Bass beer ties

Scottish & Newcastle decision (PDF, 25 pages) (or HTML) and Bass decision (HTML): two further European Commission decisions finding that were caught by Article 81(1) but justified under Article 81(3) as the beer tie system led to improvements in the distribution of beer.

24 February 1999: Article 81(3) clearance for Whitbread beer ties

European Commission decision (31 pages, PDF) (or HTML) that Whitbread beer ties were caught by Article 81(1) but justified under Article 81(3) as the beer tie system led to improvements in the distribution of beer. The Commission considered the rents paid by tied tenants compared to open market rents and other purported advantages of the tie to tenants and found that they enabled the existence of pub businesses that would not otherwise be viable, and that the beer tie was necessary for this.

2 February 1999: Passmore v Morland: Court of Appeal judgment against tenant

Court of Appeal judgment confirming the High Court judgment of 8 July 1998:

"For the reasons which I have given I am satisfied that the nullity imposed by Article 81(2) has the same temporaneous or transient effect as the prohibition in Article 81(1). It follows that if, as a result of a change of circumstances, the prohibition no longer applies as between the parties to the agreement, then the agreement between them ceases to be void. In the present case that occurred when the reversion to the tenancy passed to Morland. In my view the Judge was entirely correct in the conclusion which he reached. "

12 November 1998: Article 81(1) clearance of regional brewer beer tie

European Commission decision (27 pages, PDF) rejecting a complaint (by the owner of the Fox & Hounds pub) that a Greene King beer tie infringed Article 81. The Commission found that the second Delimitis test (that Greene King's ties make a significant contribution to the foreclosure of the market to new entrant brewers) was not satisfied.

25 November 1998: Crehan: High Court judgment on right to damages

This High Court judgment (about 22 pages, HTML), subsequently reversed following a preliminary ruling by the ECJ (see 20 September 2001), found that Bernard Crehan would not have a right to damages under Article 81.

8 July 1998: Passmore v. Morland: High Court judgment against tenant

High Court judgment striking out a claim by tenant David Passmore alleging that his landlord Morland could not enforce the beer tie. The tie had been agreed with Inntrepreneur and was alleged to have been illegal under Article 81, and that the purported transfer of the benefits of the tie to Morland when it bought the reversion from Inntrepreneur was therefore ineffective. The judge held that "the statutory prohibition in Article 81(1) operates periodically, i.e. it can be turned on and off depending on the surrounding facts".

14 April 1998: Rejection of FSB complaint about Inntrepreneur and OFT

European Commission letter rejecting a complaint by Inntrepreneur tenants and the Federation of Small Businesses against Inntrepreneur's "old lease" (the one that Mr Crehan had) and the findings of the OFT in its 1995 report.

22 August 1997: Extension of Beer Orders to guest bottled beer

The Supply of Beer (Tied Estate) (Amendment) Order 1997 came into force, requiring a guest bottled beer alongside the guest cask ale.

16 May 1995: OFT finding that beer price premium for tied pubs is justified

The OFT announced (original announcement not found online) that its inquiry had concluded that lower rents and other forms of support offered by landlords to tied pubs meant that the premium price charged for beer did not place the tied trade in general at a disadvantage.

7 February 1995: OFT asked by Commission to inquire into beer price premium for tied pubs

The European Commission and the OFT announced (original announcements not found online) that the OFT would conduct an inquiry into differences in wholesale beer prices offered to tied pubs and to free houses. This work was requested by the Commission in connection complaints raised by Inntrepreneur tenantes following the Commission's annoucement that it was considering clearing Inntrepreneur beer ties under Article 81(3).

1991-1993: Crehan: period of operation of the leases

Bernard Crehan was a tenant of two Inntrepreneur tied pubs between July 1991 and the failure of the businesses in 1993. The legality of the leases for these pubs was litigated over the following 11 years.

28 February 1991: Delimitis ECJ judgment

This preliminary ruling (about 12 pages, HTML) of the Court of Justice of the European Communities in a dispute between Henninger Bru and a tied publican in Germany, Mr Stergios Delimitis, has provided the basis for subsequent decision of the application of Article 81(1) to beer tie arrangements imposed by large brewing companies.

The court determined that the following two conditions had to be satisfied for a beer tie to infringe Article 81(1):

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1980s

19 December 1989-1 May 1990: The Beer Orders

The Supply of Beer (Tied Estate) Order 1989 and The Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989 came into force, restricting the number of tied pubs that may be owned by large brewery groups and requiring large brewer landlords to allow a guest ale to be sourced by tenants from someone other than their landlord.

21 March 1989: MMC report on the supply of beer

This report by the Monopolies and Mergers Commission recommended a number of measures, which led to the Beer Orders. The report is available as a series of PDF files from the Competition Commission 's website.

4 August 1986: MMC inquiry starts

The OFT referred to the Monopolies and Mergers Commission (now Competition Commission) "the matter of the existence or the possible existence of a monopoly situation in relation to the supply of beer within the United Kingdom for retail sale on licensed premises".

1983: Old block exemption — Regulation 1984/1983

Commission Regulation 1984/1983 (8 pages, PDF) on the application of Article 81(3) to categories of exclusive purchasing agreements was the main block exemption applicable to beer ties until it was replaced by the 1999 vertical block exemption.

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Other links

McCabe v Scottish Courage: Wholesale beer tie case

In James E McCabe Ltd v Scottish Courage Ltd the High Court (Mr Justice Cook in the Commercial Court) made a preliminary ruling (20 pages, HTML) on 28 March 2006 to the effect that, if a prohibition on reselling competing US bottled beers imposed by Scottish Courage on McCabe as part of an agreement making McCabe the exclusive distributer of bottled Miller in Northern Ireland was a restraint of trade illegal at common law (an assumption that the judge found unlikely to be true) then it would not be severable: the contract would either stand with the restriction or become unenforceable altogether, because removing only the non-compete clause would destroy the character of the agreement. McCabe had sued Scottish Courage alleging breach of various aspects of the agreement by Scottish Courage (including breach of McCabe's exclusivity rights), and had sought to argue severability in order to defend a counter-claim by Scottish Courage based on infringement of the prohibition on selling competing US bottled beers.

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Last changed by Geoff at 4:35 PM on Thursday 16 August 2007.

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