Enterprise Inns Plc v (1) Palmerston Associates Ltd (2) Paul Rigby and Another

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Morgan
Judgment Date30 Nov 2011
Neutral Citation[2011] EWHC 3165 (Ch)
Docket NumberCase No: HC11C02017

[2011] EWHC 3165 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Morgan

Case No: HC11C02017

Between:
Enterprise Inns PLC
Claimant
and
(1) Palmerston Associates Limited
Defendants
(2) Paul Rigby
(3) James Younger

Mr Martin Rodger QC (instructed by Gosschalks) for the Claimant

Mr Jonathan Seitler QC and Mr Julian Greenhill (instructed by DLA Piper UK LLP) for the Defendants

Hearing date: 25 October 2011

Mr Justice Morgan

Introduction

1

The Claimant is the landlord and the First Defendant is the tenant of a public house known as the Lord Palmerston, at 91 Lordship Lane, East Dulwich, London, SE22. The public house is held on the terms of a Lease dated 4 th August 1989 ("the 1989 Lease") as varied by a Deed dated 17 th July 1997 ("the 1997 Deed") and a further Deed dated 31 st May 2001 ("the 2001 Deed").

2

Certain provisions which are principally contained in the 2001 Deed create what can be called, in shorthand, a "beer tie". Although that is a convenient shorthand, the provisions are not confined to beer but extend to cider and perry. The provisions are detailed and consist of both an exclusive purchasing obligation and a restriction on competition.

3

The parties disagree as to what the relevant provisions mean and how they operate. That disagreement led Vos J on 29 th June 2011 to direct the trial of a preliminary issue designed to answer the question as to who is right about the meaning and effect of the relevant provisions. The provisions contain definitions of "Specified Beers" and "Specified Ciders". These definitions are fundamental to the operation of the relevant provisions.

4

The Claimant seeks a declaration that on the true construction of the 1989 Lease, as varied by the 1997 Deed and the 2001 Deed, "Specified Beers" and "Specified Ciders" are those of a type which fulfil two conditions, namely:

(1) the type is listed in Appendix 1 or Appendix 2; and

(2) there is a least one brand of this type on the relevant Price List.

5

The First Defendant seeks a declaration that on the true construction of the 1989 Lease, as varied by the 1997 Deed and the 2001 Deed, "Specified Beers" and "Specified Ciders" are those beers and ciders (as the case may be) which are both:

(1) of a type set out in Appendix 1 or 2; and

(2) of a brand or denomination listed in the relevant Price List

6

The resolution of the dispute requires the court to construe the relevant provisions in accordance with their terms but also in accordance with their perceived commercial purpose. In carrying out that task, the court does not confine itself to the language of the relevant provisions but also takes into account any relevant background circumstances where information about those circumstances would have been reasonably available to the contracting parties.

7

Although the preliminary issue is confined to the interpretation of the relevant provisions, the Claimant has taken the court on an extensive tour of what it says was the regulatory position, principally under European competition law, in relation to purchasing obligations and restrictions on competition of the kind with which this case is concerned. I am not asked to rule on the application of any of the regulatory provisions to the contractual provisions in this case but it is said that an understanding of the regulatory position is needed to enable the court to understand the meaning and effect of the relevant provisions and, in particular, to understand their commercial purpose.

8

Mr Rodger QC appeared on behalf of the Claimant and Mr Seitler QC and Mr Greenhill appeared on behalf of the Defendants. The First Defendant is the sole tenant under the lease of the public house. In the remainder of this judgment, I will refer to the position of the First Defendant alone.

The 1989 Lease

9

The 1989 Lease relating to this public house was made between Watney Truman Limited as the lessor and Mr and Mrs R W Buckley as the lessee. The 1989 Lease was for a term of 20 years commencing on 1 st June 1989. The 1989 Lease provided for Terms of Trading which were set out in the original First Schedule to that lease. Those provisions contained four principal strands. First, there was an exclusive purchasing obligation which referred to Specified Beers and Specified Non-beer Drinks. Secondly, there were restrictions on competition which again referred to Specified Beers and Specified Non-beer Drinks. Thirdly, there was a Minimum Purchasing Obligation. Fourthly, there was a stocking obligation in relation to wines and spirits. The definitions in the 1989 Lease of Specified Beers and Specified Non-beer Drinks were similar to, but not identical to, the definitions of similar terms in the 2001 Deed which fall to be construed in this case.

The 1995 litigation

10

In 1995, Mr and Mrs R W Buckley commenced High Court proceedings (Case No. 1995 B No. 2) against Watney Truman Ltd and also against Inntrepreneur Estates (GL) Ltd, Truman Ltd and Courage Ltd. The claim was in similar terms to claims brought by many tenants of tied public houses at around that time. One of the other tenants was a Mr Bernard Crehan. Mr Crehan's case became the test case and a reported decision in relation to the litigation involving Mr Crehan is referred to later in this judgment. I was not shown a copy of the pleadings in the case brought by Mr and Mrs Buckley but I was told that they claimed that the relevant provisions which then applied in the lease of The Lord Palmerston public house amounted to an unlawful restriction on competition contrary to Article 85 of the EEC Treaty.

11

In around July 1997, Mr and Mrs Buckley settled their High Court proceedings with their landlord, amongst others, on terms that they would enter into a Deed of Variation of the 1989 Lease and a Purchasing Agreement.

The 1997 Deed

12

On 17 th July 1997, Inntrepreneur Pub Company (GL) Limited (who had become the landlord under the 1989 Lease) and Mr and Mrs Buckley as the tenant under the 1989 Lease entered into the 1997 Deed. The original Terms of Trading in the First Schedule to the 1989 Lease were deleted and replaced by new provisions contained in Appendix 1 to the 1997 Deed. The new Terms of Trading continued to impose an exclusive purchasing obligation and a restriction on competition. The provisions contained a definition of Specified Beers which is very similar if not identical to the definition of Specified Beers in the 2001 Deed. The 1997 Deed did not refer to Specified Ciders. The former Minimum Purchasing Obligation and the former stocking obligation in relation to wines and spirits were removed.

13

The 1997 Deed also included at Appendix 2 the following provision which was added as a new clause in the 1989 Lease:

"

AGREEMENTS

"(A) The Company may at any time by notice to the Tenant require the tenant to comply with the new terms of trading which shall be identical to the Terms of Trading save to the extent that the Company by the notice requires the Tenant:-

(i) to stock and make prominent a display of such brands of the types of beers listed as Specified Beers as the Company or the Nominees shall specify by reference to the brands listed in the Company's Price List prevailing at the time such notice is served (including, at the Company's option, such of the brands as were listed in the Company's Price List prevailing at the date of the Deed of Variation pursuant to which the clause was inserted into this Lease) (the "Specified Brands"), and

(ii) not to sell or expose for sale in the Property any Specified Beer which is not a Specified Brand other than one brand of Draught Cask-Conditioned Beer

and where the Company has given notice of the aforesaid then during the currency of each and every notice given hereunder all references to Specified Beers in paragraphs 2,3,7 and 9 inclusive of the new terms of trading shall be read and constructed as including references to the Specified Brands the subject of any such notice of notices.

(B) Where notice has been served on the Tenant under sub-clause (A) above, if the Tenant is released (either by such notice or subsequently) from any of its obligations to purchase the Specified Brands from the Company or its Nominees (the Tenant hereby acknowledging and agreeing to the Company's right to release such obligations), the Company may by notice to the Tenant ("a Company's Notice") require an additional review of the rent in accordance with the rent review provisions contained in the Lease as if the date one month after the Company's Notice were a Rent Review Date and for the purpose of such review (and any subsequent review) the terms of the Lease which have been varied are to be taken into account in their varied forms.

(C) Nothing in this Clause is to affect the timing or implementation of any subsequent increase in the Rent.

(D) Where notice has been served on the Tenant under sub-clause (A) above, references herein to the Terms of Trading shall thereafter be read and construed as references to the new terms of trading specified in such notice."

14

Also on 17 th July 1997, the landlord and the tenant under the 1989 Lease (and another party) entered into a Purchasing Agreement; it is not necessary to refer to the terms of that agreement.

The 2001 Deed

15

On 31 st May 2001, Unique Pub Properties Ltd (who had become the landlord under the 1989 Lease) and Mr and Mrs Buckley entered into the 2001 Deed. The 2001 Deed extended the original term of the lease so that it became a term for 30 years from and including 1 st June 1989. The 2001 Deed replaced the Terms of Trading in the First Schedule to the 1989 Lease (as...

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