Landlord and tenant — Covenants — Beer tie — Whether beer tie void under Article 85 — Whether block exemptions regulations satisfied — Surrender — Whether tenancy protected by Landlord and Tenant Act 1954 surrendered upon grant of tenancy at will
In 1994 the second plaintiff, Centric Pub Co Ltd,
granted the appellant tenant and his partner a three-year tenancy of a pub. The
tenancy was subject to a beer tie and a restriction on the sourcing of
amusement machines. It also recited that the exclusive purchase arrangements
were intended to obtain the benefit of the block exemption from the provisions
of Article 85 of the Treaty of Rome as granted by Article 6 of EEC Regulations
1984/83. The tenancy was in similar terms to an earlier tenancy to the
appellant granted in 1992.
In 1995 the first plaintiff acquired the reversion
to the pub. On the expiration of the contractual term of the tenancy, the first
plaintiff granted the tenant a tenancy at will on terms that included the beer
tie and a restriction relating to amusement machines. Following the failure of
the tenant to pay rent, the first plaintiff terminated the tenancy at will and,
in 1996, commenced the first action seeking possession and arrears of rent. In
that action the tenant claimed that the 1994 tenancy continued in force as a
business tenancy and that, inter alia, he had been induced to enter into
the tenancy at will by a misrepresentation.
In May 1997 the first plaintiff served a notice
under section 146 of the Law of Property Act 1925 alleging non-compliance with
the beer tie and the restriction on the sourcing of amusement machines. The
plaintiffs commenced the second action, as an alternative to the first, claiming
possession and forfeiture on the ground of non-payment of rent and breach of
covenant. In the court below the deputy judge held in the first action that the
tenancy at will had been determined and the first plaintiff was entitled to
possession. If he were wrong in the first action, he held in the second action
that the beer tie was not caught by Article 85 of the Treaty of Rome, and even
if it was, the tenant had no monetary claim. The tenant appealed.
Held: The appeals were dismissed.
Gibbs Mew
plc v Gemmell
The tenant
could not deny that by taking the tenancy at will he surrendered the 1994
tenancy; section 38(1) of the Landlord and Tenant Act 1954 had no application.
The tenant could not rely on misrepresentation as a defence to signing the
tenancy at will.
Gibbs Mew
plc and another v Gemmell
(1) Article 85 had no application to the beer
tie; the two conditions in Delimitis v Henninger Bräu AG [1991]
ECR I-935 were not satisfied.
(2) If the Article did have application, the
beer tie fell within the scope of the block exemption. The manner in which
beers were specified in the 1992 and 1994 leases, and the inclusion of
provisions relating to amusement machines, were not contrary to the
requirements of specification in Article 6 of EEC Regulation 1984/83 in respect
of block exemption.
(3) If the beer tie did offend Article 85 and
was illegal, English law did not allow a party to an illegal agreement to claim
damages from the other party for loss caused to him by being a party to the
illegal agreement. Further, in the circumstances of the beer tie, the purchases
under it and the reduced rent to reflect it, an English court would not allow
the tenant a restitutionary remedy.
(4) The provisions in the lease that precluded
any set-off of sums against rent were enforceable and were not inconsistent
with community law; the provisions were not an obstacle to the enforcement of
Article 85. Parties could agree to the exclusion of set-off under a contract.
The following cases are
referred to in this report.
Banks (HJ) & Co Ltd v British Coal Corporation [1994] ECR I-1209
Boissevain v Weil
[1950] AC 327; [1950] 1 All ER 728
Chemidus Wavin Ltd v Société pour la Transformation et l’Exploitation des Resines
Industrielles SA [1978] 3 CMLR 514; [1977] 5 WWR 155, Saskatchewan, CA
Delimitis v Henninger
Bräu AG [1991] ECR I-935; [1992] 5 CMLR 210
Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938; [1997] 2 All ER 593, CA
Garden Cottage Foods Ltd v Milk Marketing Board [1984] AC 130; [1983] WLR 143; [1983]
2 All ER 770, HL
Greenalls Management Ltd v Canavan unreported 30 July 1997
Guinness Mahon & Co Ltd v Kensington and Chelsea Royal London Borough Council [1998]
3 WLR 829; [1998] 2 All ER 272
Hounslow London Borough Council v Pilling [1993] 1 WLR 1242; [1994] 1 All ER 432; (1993) 91
LGR 573; 66 P&CR 22; [1993] 2 EGLR 59; [1993] 26 EG 123
India (Republic of) v India Steamship Co Ltd (No 2) [1997] 3 WLR 818; [1997] 4
All ER 380, HL
Inntrepreneur Estates plc v Milne unreported 30 July 1993
Inntrepreneur Estates plc v Smyth unreported 14 October 1993
Italy v EEC
Council [1966] ECR 389
Kiriri Cotton Co Ltd v Dewani [1960] AC 192; [1960] 2 WLR 127; [1960] 1 All ER
177
Matthew Brown plc v Campbell unreported 11 November 1997
MTV Europe v BMG
Record (UK) Ltd [1997] EuLR 100
Parkes v Esso
Petroleum Co Ltd unreported 11 February 1998
Scottish & Newcastle plc v Bond unreported 25 March 1997
Société de Vente de Ciments et Bétons de
l’Est SA v Kerpen & Kerpen GmbH & Co
[1983] ECR 4173
Star Rider Ltd v Inntrepreneur
Pub Co [1998] 1 EGLR 53; [1998] 16 EG 140
Tarjomani v Panther
Securities Ltd (1983) 46 P&CR 32
Tinsley v Milligan
[1994] 1 AC 340; [1993] 3 WLR 126; [1993] 3 All ER 65, HL
Trent Taverns Ltd
v Sykes unreported 18 February 1998
Van Schijndel v Stichting
Pensioenfonds voor Fysiotherapeuten [1995] ECR I-4705; [1996] 1 CMLR 801
This was an appeal by the
defendant, Graham Gemmell, from orders made by Judge Anthony Thompson QC,
sitting as a judge of the High Court, on the hearing of summonses under RSC Ord
14 issued by the first plaintiff, Gibbs Mew plc, in the first action for
possession and
Co Ltd, in the second action for forfeiture and arrears of rent.
Michael Beloff QC and Becket Bedford (instructed
by Ferdinand Kelly, of Birmingham) appeared for the appellant; Nicholas Green
QC (instructed by Parker Bullen, of Salisbury) represented the respondents.
Giving the first judgment, PETER GIBSON LJ said: The
defendant, Graham Gemmell, appeals against the orders made on 29 October 1997
by Judge Anthony Thompson QC, sitting as a judge of the High Court. By the
first of those orders, in an action in which Gibbs Mew plc (Gibbs Mew) is the
sole plaintiff, he gave possession to it of a public house, the Red Lion, in
Shepshed, Loughborough, and gave Gibbs Mew judgment in the sum of £15,199.26
for arrears of rent and interest with costs. By the second order in a second
action, in which Gibbs Mew is the first plaintiff and Centric Pub Co Ltd
(Centric) the second plaintiff, the judge made the like orders in favour of
Gibbs Mew and Centric. He refused Mr Gemmell leave to appeal, but such leave
was subsequently given by the single lord justice who also granted a stay of
execution.
The relevant facts can be summarised shortly.
Centric is not a brewer, but when formed in 1992 it owned 173 tied public
houses including the Red Lion. By a lease dated 1 December 1992 (the 1992
lease) Centric granted Mr Gemmell, who was named as the tenant, a tenancy of
the Red Lion for a term of three years from that date. The recitals to the 1992
lease included the following:
(B) The Third Schedule hereto contains exclusive
purchase obligations which are intended to obtain the benefit of the block
exemption from the provisions of Article 85(1) of the Treaty of Rome granted by
EEC Regulation 1984/83 these obligations being an essential feature of the
tenancy
(C) The parties hereto have agreed that the rent
hereby reserved represents the rent which might reasonably be expected to be obtained
for the premises in the open market having regard to all the terms of this
Agreement and in particular to the exclusive purchasing obligations contained
in the Third Schedule of this Agreement and that such a rent being lower than
it would be if no such exclusive purchasing obligations were imposed upon the
tenant provides the tenant with special commercial or financial advantages
within the meaning of Article 6 of EEC Regulation 1984/83.
The third schedule contained provisions requiring
the tenant not to sell or bring on to the premises for sale any specified beers
or other specified non-beer drinks not supplied by Centric or its nominees. The
beers were specified by type rather than by brand. So were most of the non-beer
drinks. The provisions in the Third Schedule were referred to compendiously in
argument as ‘the beer tie’, and I shall use the same term.
The 1992 lease provided for an initial rent of
£14,000 pa, with increases of 5% over the yearly rent previously payable on 1
April in each year, the rent to be paid every two weeks in advance. By clause
2.1.1 the tenant covenanted to pay the rent in that manner and, if Centric
should so require, by direct debit. By clause 2.1.2 the tenant covenanted to
pay not later than 14 days after delivery, or in advance of or on delivery if
required by Centric, for all goods supplied by Centric to the tenant. Clause
2.21 was a covenant by the tenant not to install or operate within the premises
any pool or snooker table or amusement, entertainment, video gaming or vending
machine other than the machines or equipment approved by Centric from a
supplier whom Centric has approved as meeting its criteria and specification
for such machines or equipment. There was a provision for forfeiture of the
tenancy for non-payment of rent or for breach of covenant.
On 11 August 1994 Mr Gemmell wrote to Mr Conway,
Centric’s area manager with responsibility for the Red Lion, asking for the
name of his partner, Carol McGonigle, to be added to the tenancy. Centric
provided a fresh tenancy agreement, also dated 1 December 1992 (the 1994
lease), with Miss McGonigle named with Mr Gemmell as the tenant, and that was
executed in August 1994 by both of them in the presence of Mr Conway. It
contained two terms that differed from the 1992 lease. To the covenant in
clause 2.1.1 to pay the rent at the times and in the manner provided were added
the words ‘without any deduction or set-off whatsoever’. Clause 2.1.2 was
reworded as a covenant to pay ‘a further additional rent’ for all goods supplied
by Centric to the tenant. Otherwise the terms were essentially the same as in
the 1992 lease.
On 25 June 1995 Gibbs Mew, which is a small brewer
and owns a number of public houses, acquired the assets of Centric, including
Centric’s interest in the Red Lion. On 1 December 1995, after the contractual
term of the tenancy expired, Gibbs Mew wrote to Mr Gemmell offering a temporary
tenancy of the premises on terms set out in the letter. Those terms included a
lower rent, viz £11,576 pa plus VAT, and a provision that the tenancy
was to be, from 1 December 1995, a tenancy at will. Again, there was a beer tie
corresponding to the third schedule to the 1992 and 1994 leases and there was a
provision against permitting any amusement or gaming or automatic machine to be
in the premises without Gibbs Mew’s consent. Other terms, for example those
relating to repairs and insurance, were less onerous than the covenants that Mr
Gemmell undertook under the 1992 and 1994 leases. Mr Gemmell accepted that
offer in February 1996, signing a copy of that letter as requested by Gibbs
Mew. I shall refer to the agreement constituted by that letter as ‘the tenancy
at will’.
Mr Gemmell paid the rent payable under the tenancy
at will by direct debit from 19 April 1996 until August 1996, when he
countermanded the direct debit instructions. He fell into arrears with the
rent. By a letter dated 9 October 1996 Gibbs Mew served on Mr Gemmell notice to
terminate the tenancy at will, and when he did not comply with that notice it
commenced the first action against him on 17 October 1996, claiming possession
of the Red Lion and arrears of rent. On 23 December 1996 Mr Gemmell served a
defence and counterclaim. He claimed that the 1992 lease continued in force
because it was a business tenancy that had not been validly determined and,
further or alternatively, he claimed rescission on the ground that the tenancy
at will had been induced by duress and misrepresentation. He also claimed
declarations that, contrary to recitals (B) and (C) to the 1992 lease, the
block exemption was inapplicable. On 1 May 1997 a notice under section 146 of
the Law of Property Act 1925 was served on Mr Gemmell alleging breaches of
covenant, in that there had been non-compliance with the beer tie and amusement
machines had been installed without consent. Those breaches are not denied by
Mr Gemmell. On 11 June 1997 Gibbs Mews and Centric brought the second action as
an alternative to the first action, claiming possession and forfeiture of the
1994 lease on the ground of non-payment of rent and for breach of covenant.
Gibbs Mew in the first action and Gibbs Mew and
Centric in the second action applied for summary judgment under Ord 14. The
judge rejected Mr Gemmell’s claim to be entitled to avoid the tenancy at will
and held that Gibbs Mew was entitled to succeed on its claim in the first
action. In case he was wrong on that, the judge considered the position under
the 1994 lease and held that, even if Mr Gemmell had a monetary claim based on
Article 85 for damages and restitution, Gibbs Mew and Centric were entitled to
succeed on the basis of the failure to pay rent, there being no set-off
permitted, and, further, the countermanding of the direct debit instructions
was a breach of the lease. The judge further considered an argument by Mr
Gemmell that the 1992 lease was void as being in breach of Article 85, but
rejected that argument on the ground that the beer tie was not caught by
Article 85. He also held that if Article 85 did apply, Mr Gemmell’s claim in
restitution for repayment of all the moneys paid by him for purchases of beer
was totally unsustainable. The judge therefore gave judgment in favour of Gibbs
Mew and Centric.
Following that judgment, Mr Gemmell gave up
possession of the Red Lion, but he now appeals. He abandoned the defence of
duress, but now puts his defence to the first action on two grounds. The first
is that the 1992 lease was a continuing business tenancy under section 24 of
the Landlord and Tenant Act 1954 (the 1954 Act), which has not been validly
determined in accordance with Part II of that Act. The second is that the
tenancy at will was voidable because it was induced by misrepresentation and
has been avoided by Mr Gemmell’s defence and counterclaim. The defence to the
second action is mounted on the basis, first, that the beer tie and the
restriction on his freedom to obtain amusement machines from persons of his
choice in the 1992 and 1994
(2) and, second, that he was not in arrears of rent in that: (a) there was no
legal justification for the payments for beer as an additional rent as the beer
tie pursuant to which they were made was void under Article 85 and the payments
went to his credit on his rent account; and (b) further or alternatively he has
a defence of set-off arising out of a cross-claim under Article 85 for
restitution of the moneys paid under the beer tie and for damages arising out
of the loss, which, he claims, he has suffered by the imposition of that tie.
Those defences, and the responses from Gibbs Mew and Centric, have been
extended and elaborated in a way that goes well beyond what was put before the
judge, and a considerable number of authorities has been deployed before us. It
has been emphasised by Mr Gemmell that the proceedings are under Ord 14 and
that an arguable case suffices to defeat the claims against him at this stage.
I of course accept that. I shall discuss the issues that now arise in turn.
First action
Determination of a business tenancy
Mr Michael Beloff QC and Mr Becket Bedford, for Mr
Gemmell, submitted that there had been no valid determination of the business
tenancy of Mr Gemmell and Miss McGonigle under the 1994 lease. Section 24(1) of
the 1954 Act provides that a business tenancy shall not come to an end unless
terminated in accordance with the provisions of Part II of that Act, except
when it comes to an end by (so far as relevant) surrender. The judge at one
point erroneously referred to the 1994 lease as having expired by effluxion of
time. The contractual term expired on 30 November 1995, but the tenancy
continued by reason of section 24 unless and until there was a valid
termination or surrender.
The tenancy at will, which Mr Gemmell signed in
February 1996 and which took immediate effect, was plainly intended by Gibbs
Mew and Mr Gemmell to replace the tenancy arising out of the 1994 lease with
which it was inconsistent. There were to be new parties (Gibbs Mew as landlord
and Mr Gemmell alone as tenant), a lower rent and other radically different
provisions, not least that the tenancy was to be a tenancy at will instead of a
tenancy for a term. It can be inferred from the tenancy at will that the
parties to it intended there to be an immediate surrender of the tenancy arising
out of the 1994 lease. But, irrespective of the parties’ intentions, Mr
Gemmell, in taking the tenancy at will of the Red Lion and acting in accordance
with its terms, was purporting to effect a surrender of the prior tenancy by
operation of law.
Mr Beloff argued that such surrender could not be
effective for two reasons: first, a joint tenancy cannot be surrendered by the
action of one of the joint tenants; and second, in so far as the tenancy at
will was an agreement to surrender the prior tenancy, it was void under section
38 of the 1954 Act. By section 38(1):
Any agreement relating to a tenancy to which this
Part of this Act applies (whether contained in the instrument creating the
tenancy or not) shall be void in so far as it purports to preclude the tenant
from making an application or request under this Part of this Act or provides
for termination or the surrender of the tenancy in the event of his making such
an application or request or for the imposition of any penalty or disability on
the tenant in that event.
Mr Nicholas Green QC, for Gibbs Mew and Centric,
responded to these submissions by pointing out how insignificantly Miss
McGonigle has featured in these proceedings until now. Mr Gemmell, in his first
affidavit of 25 September 1997, had denied that the 1994 lease was ever signed
by himself or Miss McGonigle. In his defence and counterclaim in the first
action, which he has never sought to amend, he averred that he is and was at
all material times tenant of the Red Lion. Mr Gemmell, after the judge’s
judgment, said in his second affidavit of 17 December 1997 only that it
appeared that he himself had written to Mr Conway to ask for Miss McGonigle to
be added to the lease and that it appeared that Miss McGonigle and he may have
signed the 1994 lease. There was plain evidence before the judge that they did
sign it. The evidence strongly suggests that she was only nominally a tenant
with Mr Gemmell and that the reality was that he continued to act, and to be
regarded, as the tenant. As he himself said in his second affidavit, all
invoices, correspondence, etc from the landlord were only ever addressed to him
and not altered to add her and, over time, he forgot that she had signed the
1994 lease. There is no evidence that she at any time asserted her rights as a
joint tenant, and she appears to have acquiesced in all that Mr Gemmell did as
tenant. Mr Gemmell appears to have discussed with Miss McGonigle at least the
question of whether she executed the 1994 lease: see para 13 of his second
affidavit: ‘my partner and I recollected that we had signed a blank lease
document’. She has taken no part whatever in these proceedings, not even to put
in any evidence. She has not sought to be joined as a party nor did she seek to
dispute Gibbs Mew’s and Centric’s claim to possession nor the giving up of
possession by Mr Gemmell after the judge’s order. It is therefore somewhat
artificial to find Mr Gemmell now asserting her interest which he previously
denied and which she herself has never sought to assert and does not even now
assert.
Mr Beloff relied on the decision of this court in Hounslow
London Borough Council v Pilling [1993] 1 WLR 1242* as establishing
that as a matter of law a joint tenancy cannot be surrendered by the action of
only one joint tenant. That was a case where the joint tenant other than the
one purporting to surrender the tenancy was successful in asserting that the
tenancy remained on foot. I am extremely doubtful if Miss McGonigle could now
assert a claim, having appeared to acquiesce in Mr Gemmell’s actions as tenant.
But, whatever Miss McGonigle’s position might be if, at this very late stage,
she were to assert a claim, in these actions we are only concerned with Mr
Gemmell. Mr Green submitted that Mr Gemmell, by entering into the tenancy at
will and occupying the Red Lion on the less onerous terms of the tenancy at
will, surrendered the 1994 lease, the surrender being by operation of law. He
also submitted that Mr Gemmell is estopped by convention from asserting that
the tenancy at will did not govern the relationship between himself and Gibbs
Mew. He further advanced a number of arguments as to why section 38 did not
apply, although one of those arguments, based on section 28 of the 1954 Act, he
later abandoned, in my view rightly.
*Editor’s note: Also reported at [1993] 2 EGLR 59
In my judgment, Mr Gemmell cannot now be allowed
to deny that he did surrender the previous tenancy and that he held the Red
Lion from February 1996 as a tenant at will on the terms of the tenancy at
will. The doctrine of estoppel forms the foundation of surrender by operation
of law: see, for example, Tarjomani v Panther Securities Ltd
(1983) 46 P&CR 32 at p41. There must be conduct by the tenant unequivocally
amounting to an acceptance that the tenancy has been terminated. That conduct
can be relinquishment by that tenant of possession and its acceptance by the
landlord or other conduct by the tenant inconsistent with the continuation of
the tenancy, and, in addition, the circumstances must be such as to render it
inequitable for the tenant to dispute that the tenancy has ceased. Further, the
essential requirements for an estoppel by convention are as stated by Lord
Steyn in Republic of India v India Steamship Co Ltd (No 2) [1997]
3 WLR 818 at p829:
It is settled that an estoppel by convention may
arise where parties to a transaction act on an assumed state of facts or law,
the assumption being either shared by them both or made by one and acquiesced
in by the other. The effect of an estoppel by convention is to preclude a party
from denying the assumed facts or law if it would be unjust to allow him to go
back on the assumption.
It is plain that the tenancy at will was intended
to supersede, and was treated by the parties as having superseded, the previous
tenancy arising from the 1994 lease. Both parties acted on it accordingly.
Although Gibbs Mew might have obtained possession of the Red Lion because of
the rent and other arrears owed by Mr Gemmell, it allowed him to occupy, and he
occupied, Gibbs Mew’s public house on the more advantageous terms of the
tenancy at will, paying the lower rent reserved until he countermanded the
direct debit instructions and fell into arrears. But he occupied the Red Lion
as a tenant at will. In my judgment, it would be unjust if, having occupied the
Red Lion on that basis for eight months, he could, on Gibbs Mew’s termination
of the
tenancy.
In the circumstances, section 38 has no
application. Let me assume, without deciding, that the tenancy at will was an
agreement relating to the prior tenancy (in that its effect was to surrender
that tenancy) and that it therefore had the effect of precluding the tenant
from making an application under Part II in respect of that tenancy.
Nevertheless, it did not prevent a surrender by operation of law. Thus, in the Tarjomani
case, had the facts justified a finding of a surrender by operation of law,
the plaintiff would have been held to his agreement to surrender his tenancy.
Mr Gemmell is estopped from denying that he did surrender the prior tenancy.
I would reject this ground of appeal, the point
now taken not providing an arguable defence to Gibbs Mew’s claim.
Misrepresentation
In his defence to the first action, Mr Gemmell
asserts that he signed the tenancy at will as a result of, first, duress and
second, a misrepresentation that he had no tenancy. In his affidavit of 25
September 1997 Mr Gemmell deposes that in or about November 1995 he asked Mr
Conway to take steps to renew his lease, but that Mr Conway said that he did
not need one and the old lease would ‘just carry on’. Mr Gemmell said that in
February 1996 Mr Conway came to see him and produced the tenancy at will, which
Mr Conway said should have been signed in December 1995. Mr Gemmell said that
he had resisted signing the document, since it appeared to change the terms of
possession of the pub and, in particular, it contradicted what Mr Conway had
stated earlier. His affidavit continues: ‘However, Peter Conway informed me
that ‘if you don’t sign then you’re out in 14 days’.’ He said that because of
Mr Conway’s remarks and their intimidatory nature he signed the tenancy at
will.
Not surprisingly, the judge, in the light of that
evidence, took the thrust of the defence to be duress, which he dismissed
shortly, saying of the statement attributed to Mr Conway that it could not
possibly amount to duress and did not in any way provide any justification or
reason for avoiding the tenancy at will. Although the judge did not refer
expressly to the defence of misrepresentation, I have little doubt that in
quoting the relevant words of Mr Conway, on which the defence of
misrepresentation is based, and rejecting that they provided a justification or
reason for avoiding the tenancy at will, he was intending to dismiss that
defence.
In my judgment, he was entitled to do so. On his
own evidence, Mr Gemmell had been told two things by Mr Conway: one was that
the existing tenancy would simply carry on without any need to renew his lease,
and the other was that if he did not sign the tenancy at will he would be out
in 14 days. His affidavit evidence is inconsistent with the pleaded defence
that there was a representation that he had no tenancy and that it was that
representation that caused him to sign the tenancy at will. On his own account
it was because he had been told by Mr Conway that his old lease would continue
that he said he resisted signing the tenancy at will, but the threat of
eviction caused him to sign. That is again emphasised in evidence put in by Mr
Gemmell after the judge’s judgment. In Mr Gemmell’s second affidavit he
repeated the words that he said Mr Conway had spoken, and stated that he signed
the tenancy at will because of the intimidatory nature of those remarks. In a
later paragraph he returned to the same point saying:
It was the intimidatory nature of Mr Conway’s
remarks, and the sheer vindictiveness of them that resulted in me signing the
purported tenancy at will.
Further, I very much doubt whether a threat
uttered by someone not a lawyer nor purporting to be a lawyer as to a legal
consequence can found a misrepresentation that could reasonably be relied on.
But in any event, I cannot see that there was a false representation in those
words attributed to Mr Conway. The 1994 lease contained a forfeiture clause in
clause 8.3, which provided (among other things) that if the tenant should fail
to pay the reserved rent within 21 days of being due, whether formally demanded
or not, Centric could lawfully effect re-entry and the demise would then cease.
There was evidence before the judge that at the beginning of January 1996 there
were rent arrears of over £4,200 outstanding (see para 9 of Mr Kelly’s affidavit
of 5 August 1997).
In my judgment this ground of appeal is hopeless
and must be rejected.
It follows that the appeal in the first action
must be dismissed.
Second action
We have been invited to express our views on the
points taken in the second action even if we were to dismiss the appeal in the
first action. As we have heard full oral argument on those points as well as
receiving very substantial written arguments and as we are aware that at least
one case in the Chancery Division is awaiting the outcome of the second action,
I will deal with those points.
Article 85
Mr Beloff submits that, on their face, both the
beer tie and the restriction on Mr Gemmell’s freedom to obtain amusement
machines from any supplier, regardless of the consent of Centric, offend
Article 85(1) with the consequence that they are void: Article 85(2). Article
85 is in the following form:
1. The following shall be prohibited as
incompatible with the common market: all agreements between undertakings,
decisions by associations of undertakings and concerted practices which may
affect trade between Member States and which have their object or effect the
prevention, restriction or distortion of competition within the common market,
and in particular those which:
(a) directly or indirectly fix purchase or
selling prices or any other trading conditions;
(b) limit or control production, markets,
technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent
transactions with other trading parties, thereby placing them at a competitive
disadvantage.
(e) make the conclusion of contracts subject to
acceptance by the other parties of supplementary obligations which, by their
nature or according to commercial usage, have no connection with the subject of
such contracts.
2. Any agreements or decisions prohibited
pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be
declared inapplicable in the case of:
— any agreement or category of agreements between
undertakings;
— any decision or category of decisions by
associations of undertakings;
— any concerted practice or category of concerted
practices;
which contributes to improving the production or
distribution of goods or to promoting technical or economic progress, while
allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned
restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of
eliminating competition in respect of a substantial part of the products in
question.
It is not disputed that Article 85(3) is not
directly effective, but empowers the European Commission to act in the
circumstances stated. The commission has acted by giving a block exemption for
certain beer tie agreements by Regulation 1984/83, which declares in Article
6(1):
Article 85(1) … shall not apply to agreements to
which only two undertakings are party and whereby one party, the reseller,
agrees with the other, the supplier, in consideration for according special
commercial or financial advantages, to purchase only from the supplier, an
undertaking connected with the supplier or other undertaking entrusted by the
supplier with the distribution of his goods, certain beers or certain other
drinks, specified in the agreement for resale in premises used for the sale and
consumption of drinks and designated in the agreement.
By Article 7(1) it is provided that, apart from
the obligation referred to in Article 6, no restriction on competition shall be
imposed on the reseller other than (so far as relevant):
(a) the obligation not to sell beers and other
drinks which are supplied by other undertakings and which are of the same type
as the beers or other drinks supplied under the agreement in the premises
designated in the agreement.
It is provided in Article 7(2) that beers or other
drinks of the same type are those that are not clearly distinguishable in view
of their composition, appearance and taste. Article 8(2)(b) (so far as
relevant) provides that where the agreement relates to premises that the
supplier lets to the reseller or allows the reseller to occupy the agreement
must provide for the reseller to have the right to obtain:
drinks, except beer, which are of the same type
as those supplied under the agreement but which bear different trade marks,
from other undertakings where the supplier does not offer them.
It is clearly established that the avoidance
prescribed by Article 85(2) applies only to those contractual provisions which
are incompatible with Article 85(1) and that the consequences of such avoidance
for other parts of an agreement and for orders and deliveries made on the basis
of the agreement are to be determined by the national court according to its
own law: see Société de Vente de Ciments et Bétons de l’Est SA v Kerpen
& Kerpen GmbH & Co [1983] ECR 4173 at pp4183-4, paras 11 and 12. It
is submitted by Mr Green, and does not now appear to be disputed by Mr Beloff,
that a breach of Article 85 is an illegal act: not only is the agreement
prohibited by Article 85(1) rendered automatically void, but the commission may
impose severe penalties on all parties to agreements that fall foul of Article
85(1): see Article 15 Council Regulation 17/62. However, Mr Beloff argues that
the beer tie is ‘not illegal in the strict sense’.
The disputes between the parties are: (1) whether
Article 85(1) applies at all to the agreements in question; (2) if so, whether
the block exemption applies; (3) whether a party to an agreement rendered void
by Article 85(1) and (2) can obtain a remedy in damages or restitution; and (4)
if so, what are the consequences for the claim for rent arrears.
1. Applicability of Article 85(1) to the beer tie
The European Court of Justice has considered the
compatibility of beer ties with Article 85(1) and has authoritatively stated
that two cumulative conditions must be met if the beer tie is to be prohibited:
The first is that, having regard to the economic
and legal context of the agreement at issue, it is difficult for competitors
who could enter the market or increase their market share to gain access to the
national market for the distribution of beer in premises for the sale and
consumption of drinks. The fact that, in that market, the agreement in issue is
one of a number of similar agreements having a cumulative effect on competition
constitutes only one factor amongst others in assessing whether access to that
market is indeed difficult. The second condition is that the agreement in
question must make a significant contribution to the sealing-off effect brought
about by the totality of those agreements in their economic and legal context.
The extent of the contribution made by the individual agreement depends on the
position of the contracting parties in the relevant market and on the duration
of the agreement. (Delimitis v Henninger Bräu AG [1991] ECR I-935
at pI-987, para 27.)
Mr Green accepts that it is arguable that the UK
beer market is such that the first condition is satisfied. He contends that the
second condition is not. The judge referred to the evidence before him that the
share of the British market held by Gibbs Mew amounted to no more than 0.2% of
that market. The number of its tied and managed houses (including those taken
over from Centric) was 318 in 1994/95, 295 in 1995/96 and 308 in 1996/97,
considerably less than 0.2% of the total UK licensed premises sector. Gibbs
Mew’s beer production in 1995 was 76,287 hectolitres, and in 1996 77,903
hectolitres. The commission, in a Notice on Regulation 1984/83, set out the
main considerations that would determine the commission’s view of whether or
not an exclusive purchasing agreement was covered by the block exemption. It
took the view that a beer tie agreement did not in general fall under Article
85(1) if (a) the market share of that brewery was not higher than 1% of the
national market for the resale of beer in premises used for the sale and
consumption of drinks, and (b) if that brewery did not produce more than
200,000 hectolitres of beer per annum, but said that those principles did not
apply if the agreement was for more than seven years, in so far as it covered
beer and other drinks, and for 15 years if it covered only beer. It said of
beer tie agreements concluded by wholesalers that the principles applied mutatis
mutandis by taking account of the position of the brewery whose beer was the
main subject of the agreement. The judge thought it clear from that notice that
the beer tie in the present case would not be caught by Article 85, but
referred for the avoidance of doubt to two letters dated 14 and 24 February
1997 from the commissioner responsible for competition policy, Mr van Miert, in
which the commissioner said that the ties of the small and regional UK brewers
taken individually did not significantly contribute to the foreclosure of the
UK market, so that the second condition laid down in the Delimitis case
was not satisfied; negative clearance comfort letters would therefore be issued
upon notification to the commission of the leases used by such brewers. The
judge said that it was clear that the commission took the view that the beer
ties of a brewer like Gibbs Mew was not caught by Article 85.
Since the judgment, the commission has expressed
its view even more to the point. Gibbs Mew, on 22 August 1997, wrote to the
commission for a negative clearance letter, asking specifically for the
commission’s response in the context of the present litigation. It provided
detailed information about itself, including the fact that Centric was not a
brewer but a pub retailer, and that the volume of beer sales to the on trade by
Gibbs Mew was 160,871 hectolitres in 1995 and 180,449 hectolitres in 1996.
Copies of its standard agreements, including one in the form of the 1994 lease
and one in the form of the tenancy at will, were supplied to the commission.
The commission replied on 28 October 1997 that, on the basis of the information
provided, the commission’s directorate-general for competition had completed
the examination of the case; this had not revealed the existence of any grounds
under Article 85(1) for further action by the commission and the file would be
closed, although the case could be reconsidered if the factual or legal
situation changed as regards any essential aspect of the agreement affecting
the view to be taken of it.
Mr Beloff said that while a national court may
take account of the views of the commission, it is not bound by them. That is
correct, but it is plain that the court is bound to give very great weight to
the decisions of the commission. Sir Thomas Bingham MR in MTV Europe v BMG
Record (UK) Ltd [1997] EuLR 100 at p105 referred to ‘the extreme
undesirability of inconsistent decisions as between the Commission, on the one
side, and the national courts on the other’. He continued:
It is not hard to understand the undesirability
of such inconsistency which undermines legal certainty, leaving parties in
doubt as to where they stand, and infringes the integrity of the Community
legal order.
Mr Beloff rightly
said that the information supplied to the commission, on which the negative
clearance was given, did not include information on the supply agreements of
Centric, a wholesaler, with large UK brewers. He pointed to Mr Gemmell’s
evidence that he bought Scottish & Newcastle and Bass beers, for the first
eight months of the 1992 lease, directly from the brewers and, thereafter,
through Centric and Gibbs Mew. He asked this court to infer that the main
subject of the beer tie was beer from those two brewers, and submitted that the
issue, which could only be determined at the trial, is whether by virtue of the
duration and number of Centric’s supply agreements with breweries like Scottish
& Newcastle and Bass, the beer tie in the 1992 and 1994 leases contributed
significantly to the foreclosure of the UK market.
I am not persuaded by these submissions. The
European Court in the Delimitis case decided that beer ties do not have
as their object the restriction, distortion or prevention of competition, and
only fall within Article 85(1) if they have the effect of restricting,
distorting or preventing competition. It is clear that the commission, which
has investigated the UK market over a number of years and while fully aware
that Centric was only a wholesaler, regarded the effect of its and Gibbs Mew’s
beer ties as de minimis. Further, Mr Gemmell himself chose to purchase
both Scottish & Newcastle and Bass beers. It is apparent, therefore, that
he had a choice of beers from rival brewers that could be purchased through
Centric. It is a remarkable consequence of the argument on his behalf, if
correct, that his own choice of the products of large brewers caused the beer
tie to offend the prohibition in Article 85(1) and released him from his
contractual obligation. I
right to reject the application of Article 85.
2. The block exemption
Mr Green submitted that even if Article 85(1)
applied, the beer tie fell within the scope of the block exemption. Mr Beloff
contended to the contrary, arguing: (a) that the 1992 and 1994 leases did not
‘specify’ within the meaning of Article 6 of Regulation 1984/83 the beers and
other drinks the subject of the beer tie; (b) that the provisions of the leases
relating to amusement machines caused Article 6 not to be applicable; and (c)
that the recitals to the 1992 and 1994 leases did not bind Mr Gemmell.
(a) Specification
Centric’s beer tie in the 1992 and 1994 leases
identified tied beers and other drinks by type (eg light ale or bitter ale,
export or premium ale, mild ale, brown ale, strong ale). This, Mr Beloff said,
was insufficient. He referred us to what was stated in Delimitis to be
the purpose of the requirement of specification, namely ‘to prevent the
supplier from unilaterally extending the scope of the exclusive purchasing
obligation’: [1991] ECR I-935 at pI-989, para 36. In Delimitis it was
held that the requirement was not satisfied if the drinks were not listed in
the agreement itself but were stated to be those set out in the price list of
the brewery as amended from time to time: pI-990, para 37. It is not in dispute
that what Centric has done in purported compliance with Article 6 is standard
practice in the UK. But Mr Beloff pointed out that the commission has never
held a UK beer tie to be within the block exemption, and he relied on the
Commission Notice on Regulation 1984/83 in which it was said of Article 6 in
para 41 that the beers and other drinks covered by the exclusive purchasing
obligation must be specified by brand or denomination in the agreement.
In Greenalls
Management Ltd v Canavan, unreported 30 July 1997, the majority of
this court (Millett and Judge LJJ) expressed the provisional view that Article
6 only required specification by type. Staughton LJ thought that there was room
for argument on the point. I agree with the majority. There is no express requirement
in Regulation 1984/83 that the specification required must be by brand or
denomination. Article 7(1)(a) refers to beer supplied under the agreement as of
a type; the tenant may be precluded from selling beers of that type supplied by
other undertakings. Thus, the comparison between the agreement beers and those
that he may not sell is by reference to the type of beer. The same comparison
is apparent in Article 7(1)(b), and there appears to be an assumption that the
agreement will identify beers by type. Article 7(2), defining drinks of the
same type by reference to ‘their composition, appearance and taste’, is
consistent with the interpretation of Gibbs Mew. Article 8(2)(b) requires the
tenant to have the right to obtain from other undertakings non-beer drinks ‘of
the same type’ as those supplied under the agreement, but which bear different
trademarks. ‘Type’ there cannot mean brand or denomination. The regulation, in
short, does not point to the specification having to be by brand or
denomination, but is consistent with it having to be by type.
The present case differs from Delimitis in
that in the lease itself are specified the types of beer and other drinks. The
landlord cannot unilaterally enlarge the scope of the tie beyond those types.
The landlord can change the brands or denominations on the price list, but,
unless it has freedom to do that, no brand or denomination could be added to or
removed from the price list without a variation of the lease itself, requiring
the tenant’s consent. That consideration seems to me to add practical force to
the considerations based on the language of Regulation 1984/83, which persuaded
the majority in the Greenalls case. Although this conclusion is at
variance with the view expressed in 1984 by the commission in its notice on the
interpretation of Article 6, that view (which is not a decision of the
commission) is only of persuasive force in national courts and is not an
indication of how the European Court would interpret the Article.
(b) Amusement machines
Mr Gemmell contends for the first time in this
court that the prohibition against siting amusement machines in the Red Lion
without Centric’s consent restricts competition, in so far as it denies to him
the freedom to choose his own suppliers. Reliance is placed on Article 8(1)(b)
of Regulation 1984/83, which disapplies Article 6 (conferring the block
exemption) where the supplier restricts the freedom of the reseller to obtain
from an undertaking of his choice services or goods for which neither an
exclusive purchasing obligation nor a ban on dealing in competing products may
be imposed.
Again, this point was considered by this court in
the Greenalls case. Reference was made by Millett LJ to para 53 of the
Commission Notice on Regulation 1984/83 in which it is said:
The installation of amusement machines in
tenanted public houses may by agreement be made subject to the owner’s
permission. The owner may refuse permission on the ground that this would
impair the character of the premises or he may restrict the tenant to
particular types of machine. However, the practice of some owners of tenanted
public houses to allow the tenant to conclude contracts for the installation of
such machines only with certain undertakings which the owner recommends is, as
a rule, incompatible with this Regulation, unless the undertakings are selected
on the basis of objective criteria of a qualitative nature are the same for all
potential providers of such equipment and are applied in a non-discriminatory
manner.
Millett LJ said that that explained why there had
to be a prohibition to prevent non-competitive protection in relation to the
installation of machines. But he said that it followed that the mere inclusion
of a clause against installation of a machine without the landlord’s consent
did not contravene the regulation; there would only be a contravention if the
landlord were to restrict the installation of a machine by reference to
anti-competitive criteria, and in the absence of evidence that the landlord had
endeavoured to restrict competition by reason of the clause, the clause was
valid.
Again, I respectfully agree. In a case such as the
present, where the net revenue from amusement machines is, by agreement,
divided equally between the landlord and the tenant, it would be surprising if
the landlord, with its direct interest, could not prevent the installation of a
machine that it considered inappropriate. It must be for the tenant to show
that the clause was being used to restrict competition in a material way. There
is no such evidence in the present case. Accordingly, the clause relating to
amusement machines does not render the block exemption inapplicable.
(c) Special commercial or financial advantages
In the recitals to the 1992 and 1994 leases Mr
Gemmell acknowledged that those leases were intended to obtain the benefit of
the block exemption and, in particular, that the rent was lower than it would
have been in the absence of a beer tie and that this provided him with special
commercial or financial advantages within the meaning of Article 6. In the Greenalls
case Millett LJ gave as the purpose of such a provision to record the
mutual acknowledgement of the parties that a particular state of facts existed
so as to avoid any argument on the point. I agree. It is said by Mr Beloff that
the recitals are in violation of community competition law and cannot oust it.
But they do not purport to do so and have no independent effect of preventing,
restricting or distorting competition. Mr Beloff said that Mr Gemmell never
bargained on an equal footing and, therefore, it is not inequitable to go
behind the recitals. That is mere assertion unsupported by evidence. He also
said that Mr Gemmell did not receive what he had bargained for because he
bargained for beer under a valid, not void, contract with advantages in rent to
offset commensurate disadvantages in beer prices. I am of the clear view that
Mr Gemmell did receive exactly what he bargained for, and is merely complaining
of what he now sees as a bad bargain. Article 85 provides no remedy for that: cf
Chemidus Wavin Ltd v Société pour la Transformation et l’Exploitation
des Resines Industrielles SA [1978] 3 CMLR 514 at pp520-521).
3. Remedies for breach of Article 85
If I am wrong and the beer tie offends the
prohibition in Article 85, what remedies are, in consequence, available to Mr
Gemmell? Mr Beloff submitted that a breach of Article 85 gives rise to remedies
for Mr Gemmell in damages and restitution, and the English courts had to
protect the rights that Article 85 conferred on Mr Gemmell. He drew attention
to what the European Court said in Delimitis ([1991] ECR I-935 at
pI-982, para 45):
The prohibitions of Articles 85(1) and 86 produce
direct effects in relations between individuals, and create rights directly in
respect of individuals concerned which the national courts must safeguard.
Mr Gemmell’s case is that he has suffered loss
because the beer tie enabled Centric to charge an unreasonably high price for a
product available on the open market at a much lower price. His affidavit
evidence was that, since buying products out of tie, he sold them at the Red
Lion at a saving of £32 per 36-gallon barrel and that the saving at the time of
his first affidavit was £64 per barrel. He estimated that the savings that he
could have achieved total between £31,000 and £62,000. Mr Beloff argued that,
just as a breach of Article 86 gives rise to a claim in damages (Garden
Cottage Foods Ltd v Milk Marketing Board [1984] AC 130), so a claim
in damages can be brought by a person who suffers loss by reason of a breach of
Article 85. He further argued that a claim in restitution to recover what a
party to an offending agreement has paid pursuant to a void beer tie, or at any
rate the estimated overpayment, properly lies, and he referred to the decision
of this court in Guinness Mahon & Co Ltd v Kensington and Chelsea
Royal London Borough Council [1998] 2 All ER 272 as showing that where a
contract is avoided, restitution will be ordered even though the contract has
been completed.
Mr Green accepted that Article 85(1) is directly
effective and that it could be relied on by a party to an offending agreement
as a defence. But he submitted that it was designed to protect competitors of
one or both of the parties to the agreement and did not enable a party to that
agreement to obtain damages or a restitutionary award from the other party. He
said that Articles 85 and 86 are materially different, Article 85 containing a
multilateral prohibition against the parties entering into it or implementing
an agreement that offended the prohibition, whereas Article 86 contained a
unilateral prohibition against only the abuser of a dominant position. He
contrasted agreements that are illegal and void with agreements that are
unenforceable, and submitted that a party to an agreement of the first category
who has to plead and rely on the illegality to assert his claim cannot recover.
The first question that arises under this head is:
to whom is the duty implicit in Article 85(1) owed? So far from supporting Mr
Beloff, Delimitis seems to me to support Mr Green’s submission that
Article 85(1) is designed to protect third-party competitors. The judgment of
the European Court repeatedly refers to such competitors: see [1991] ECR I-935
at ppI-984-985 paras 15, 21 and 25 and pI-987, para 27, which I have already
cited. As Mr Green rightly said, the parties to a beer tie offending Article 85
are the cause, not the victims, of the distortion, restriction or prevention of
competition. Mr Beloff sought to derive assistance from Adv Gen van Gerven’s
remarks (at pI-971), where he commented on Article 8(2)(b) of Regulation
1984/83, and said that it revealed the intention of affording better protection
to the competitive freedom of contracting parties in a weak economic position
and of granting less readily exemption from the prohibition under Article
85(1). But the block exemption deals with the situation where it is assumed
that Article 85(1) is satisfied. Article 85(3), which is not directly effective
and the operation of which lies within the commission’s exclusive jurisdiction,
is concerned with a broader range of factors that the commission may take into
account to set against what is ex hypothesi a prevention, restriction or
distortion of competition. Article 85(1) is only concerned with the effect on
competition. I do not accept that Article 85(3) can be used to enlarge the
scope of Article 85(1) nor is the Advocate General in the passage in question
purporting to say anything on that scope. In Italy v EEC Council
[1966] ECR 389 at p406 the European Court said that a regulation made under
Article 85(3) does not create any presumption of law concerning the
interpretation to be given to Article 85(1). That case shows that the
competition that Article 85(1) protects in cases of vertical distribution
agreements is that between the parties on the one hand and third parties on the
other. Thus, the European Court said (at p407):
This must all the more be the case since the
parties to such agreement could attempt, by preventing or limiting the
competition of third parties in the product, to set up or preserve to their
gain an unjustified advantage detrimental to the consumer or user, contrary to
the general objectives of Article 85.
Further support can be obtained from the opinion
of Adv Gen van Gerven in HJ Banks & Co Ltd v British Coal
Corporation [1994] ECR I-1209 at pI-1250, para 44, for the view that it is
third-party competitors who are intended to be protected by provisions such as
Article 85 and who can recover damages for loss suffered as a result of an
infringement of those provisions.
Nor do I accept Mr Beloff’s attempted assimilation
of Article 85(1) to Article 86 as a basis for a claim in damages. The latter is
concerned with any abuse by an undertaking of a dominant position within the
common market. Instances of practices constituting such abuse are set out in
the article, and they include such matters as the imposition of unfair purchase
or selling prices or other unfair trading conditions. Only the undertaking
abusing the dominant position is subject to the prohibition. In Article 85(1)
the agreement is the subject of the prohibition, and it follows that parties
are prohibited from entering into it or implementing the agreement.
Considerations such as fairness between the parties are not relevant to whether
an agreement is prohibited by Article 85(1).
The proposition that a breach of Article 85 gives
rise to a claim by a party to an offending agreement in damages or restitution
has been rejected by the High Court in a series of unreported decisions: Inntrepreneur
Estates plc v Milne, 30 July 1993, Mitchell J; Inntrepreneur
Estates plc v Smyth, 14
October 1993, Sir Peter Pain; Matthew Brown plc v Campbell, 11
November 1997, Mr Michael Tugendhat QC; Parkes v Esso Petroleum Co
Ltd, 11 February 1998, Sir Richard Scott V-C; and Trent Taverns Ltd
v Sykes, 18 February 1998, David Steel J. In my judgment, those judges
were entirely right to do so.
I do not accept Mr Beloff’s argument that an
agreement in breach of Article 85 is not ‘illegal in the strict sense’. Article
85 not only makes the agreement automatically void but contains a prohibition
and is a penal provision. For an agreement to be illegal it need not be in
breach of the criminal law. In Van Schijndel v Stichting
Pensioenfonds voor Fysiotherapeuten [1996] 1 CMLR 801 Adv Gen Jacobs QC was
asked to express an opinion on whether national law could prevent Article 85
being raised on an appeal when the parties had failed to take the point below.
The Advocate General unambiguously equated a breach of Article 85 with
illegality under English law, saying at p818:
A national court might be obliged not to enforce
an agreement which was manifestly illegal under Article 85… But since it can
safely be assumed that no court would enforce a transaction which was
manifestly illegal as a matter of national law, even if the illegality was not
invoked by the parties, that result requires no more than an application of the
non-discrimination principle. Moreover in the case of illegality under Articles
85 and 86 of the Treaty, there is the additional safeguard of the Community
interest in as much as the Commission could always intervene.
Mr Beloff sought to distinguish the present case
on the ground that the beer tie was not manifestly illegal. But that is beside
the point. We do not have to consider in what circumstances an appeal court
should take the point of illegality when it has not previously been taken. The
Advocate General was not saying that a breach of Article 85 was an illegality
only when it was manifestly illegal.
In my judgment, English law does not allow a party
to an illegal agreement to claim damages from the other party for loss caused
to him by being a party to the illegal agreement. That is so whether the claim
is for restitution or for damages. In Boissevain v Weil [1950] AC
327 the House of Lords rejected a claim for restitution arising out of an
illegal contract, Lord Radcliffe (at p341) saying of an act forbidden by
statute, ‘I do not think that it can be a source of civil rights in the courts
of this country.’ In Tinsley v Milligan [1994] 1 AC 340 the House
of Lords laid down the applicable test for claims affected by illegal
agreements, Lord Browne-Wilkinson (with whom Lord Jauncey and Lord Lowry
agreed) saying (at p376) of a plaintiff making a claim:
he is entitled to recover if he is not forced to
plead or rely on the illegality, even if it emerges that the title on which he
relied was acquired in the course of carrying through an illegal transaction.
I do not see how Mr Gemmell can avoid relying on
the beer tie, which for this purpose must be taken to be illegal. Mr Beloff’s
suggestion that Tinsley v Milligan does not apply because the
source of Mr Gemmell’s rights is Article 85 and not the beer tie is sheer
casuistry. Mr Gemmell’s case is that the illegal agreement compelled him to
adhere to the beer tie and that caused him loss.
It was also suggested that Centric and Mr Gemmell
are not in pari delicto, Mr Gemmell being for obvious commercial reasons
the weaker party. Mr Beloff submitted that the present case is a classic case
for the application of the rule that a party to an agreement who is not in
pari delicto should be able to bring a claim against the other party, and
he referred us to Kiriri Cotton Co Ltd v Dewani [1960] AC 192.
But that was a case where the duty of observing the law was firmly placed by
the relevant legislation on the landlord, on whom alone a penalty was imposed
if he disobeyed the law. Accordingly, the tenant was held not to be in pari
delicto. With that can be contrasted the present case, where all parties
are prohibited by Article 85 from entering into or implementing an offending
agreement. Further, it is not a reason in English law why Mr Gemmell should be
allowed to recover under an illegal contract. In Boissevain v Weil
the trial judge had found that the appellant was not to be treated as in
pari delicto with the respondent. Lord Radcliffe was content to proceed on
that basis, but nevertheless rejected the appellant’s claim. Nor, in my
judgment, is the point of relevance to Article 85(1), concerned as it is not
with inequality of bargaining power between the parties to the illegal
agreement but with the effect of the agreement on competition.
The claim by Mr Gemmell for a restitutionary
remedy faces particular difficulties. The case of Guinness Mahon is not
in point, there being no question of illegality involved in that case and no
overriding principle to prevent the recognition of restitutionary rights.
Further, Mr Gemmell, for the moneys paid by him which he seeks to recover,
received beer and other drinks, which were no doubt sold by him and have been
consumed by his customers. How can it be just that he should be entitled to
recover from Centric when he cannot restore what he purchased? Even the more
modest form of his claim, viz that limited to the alleged excess over
the open market prices, gives rise to the problem that, as he himself
acknowledged in the recitals to the 1992 and 1994 leases, he received special
commercial or financial advantages, in particular in the reduced rent that he
paid because of the beer tie. Even if Mr Gemmell were right on his other
arguments, I cannot see how in the circumstances an English court could allow
him a restitutionary remedy.
4. Rent arrears
Mr Beloff submitted, first, that as payment for
beer was reserved under the 1994 lease as rent, the payments made stand to Mr
Gemmell’s credit on the rent account, and he does not need a defence of set-off
to a claim for arrears of rent, and second, that the provision of clause 2.1.1
of the 1994 lease against set-off was inconsistent with community law in so far
as it inhibited the full force of Article 85.
I am not persuaded by either point. The provision
that the payment for goods supplied by Centric to Mr Gemmell was to be by way
of a further additional rent was, I infer, intended to enable the remedies
consequent on any failure to pay rent to be employed by Centric; for example,
Centric would be able to distrain for the rent. It does not follow that there
was to be a single running account comprising both rent, in its ordinary
significance, and payments for goods, still less that damages or a
restitutionary payment in respect of goods supplied by Centric to Mr Gemmell
were intended by the parties to go to the credit of Mr Gemmell in that account,
particularly so when the obligation to pay the rent, which Centric required to
be performed by direct debit, was to be without any deduction or set-off
whatsoever. I note, for example, that in clause 9 of the 1994 lease there is reference
to ‘the amount owing either for rent or for goods supplied’, so that there was
continued recognition that the amount owing for goods supplied differed from
the amount owing for rent.
A clause expressly excluding set-off is valid and
enforceable. The payment of rent by direct debit precluded the operation of
set-off: see Esso Petroleum Co Ltd v Milton [1997] 2 All ER 593.
In any event, there was insufficient connection between Mr Gemmell’s
counterclaim and the claim for rent arrears to enable there to be an equitable
set-off. That is consistent with the decisions of all the judges sitting in the
High Court who have considered this point in similar cases: see, for example, Scottish
& Newcastle plc v Bond, unreported 25 March 1997, Judge Peter
Crawford QC, and Star Rider Ltd v Inntrepreneur Pub Co [1998] 1
EGLR 53.
Nor can I accept that clause 2.1.1 is inconsistent
with community law. It is, of course, correct that community law insists on the
removal of obstacles imposed by member states to the effective enforcement of
directly effective rights: that is the duty of each member state under Article
5 of the Treaty of Rome. But it does not follow that private parties cannot
agree on the exclusion of set-off in a contract. Nor do I see that such
provision can properly be said to be an obstacle to the enforcement of Article
85.
Conclusion
I am conscious that even in a judgment of this
length I have not dealt with every point taken by each side. But I have taken
all the submissions into account and attempted to deal with what seem to me to
be the more substantial points.
For the reasons that I have given, and
notwithstanding the ingenuity and learning displayed by Mr Beloff and Mr
Bedford in their submissions, I conclude that the judge was right in his
decisions in both actions. Although Mr Beloff suggested that this was a case
that might require a reference to the European Court under Article 177 of the
Treaty of Rome, I do not regard it as necessary to do so to enable this court
to give judgment. I would dismiss these appeals.
Agreeing, SCHIEMANN
LJ said: I agree that, for the reasons given by Peter Gibson LJ, Mr
Gemmell is now estopped from asserting that his last relationship with Gibbs
Mew was governed by anything other than the tenancy at will, that this tenancy
was properly determined and that the appeal against the decision in the first
action must fail. I also agree with my lord’s conclusion that the appeal
against the decision in the second action should also be dismissed and
associate myself with his reasoning, save in one regard, which is not essential
to the conclusion. On the question of the block exemption, I prefer to express
no opinion.
MANTELL LJ agreed with Peter Gibson LJ and did not add anything.
Appeals dismissed.
