Tied public house – Defendants taking assignment of lease and giving direct covenant to landlord – Defendants only doing so having received assurances from landlord’s representative that tie was temporary – Landlord seeking to enforce tie – Defendants asserting collateral warranty corresponding to terms of assurance – Defendants’ counterclaim allowed
The claimant was the freehold owner of the Red Lion public house in Swaffham, Norfolk, which, at all material times, was subject to a 20-year lease granted in 1990. The lease contained a restriction (the beer tie) against obtaining certain beer supplies from persons other than those nominated by the landlord, which was entitled to require any assignee of the lease to enter into a direct covenant to observe its terms. In March 1991 the claimant’s predecessor (Inntrepreneur), acting pursuant to a report of the Monopolies and Mergers Commission, gave an undertaking to the Secretary of State for Trade and Industry that, by October 1992, the number of tied pubs owned by it, would not exceed 4,350, and that any pubs remaining in its ownership after March 1998 would be released from the beer tie by that date at the latest.
In 1992 the lease was put up for sale. The defendants expressed interest in the Red Lion, but were concerned that the rent was substantially higher than that payable for another tied house in the same area. The vendor’s agent explained that the Red Lion would eventually become a free house. The defendants expressed the same concern at a later meeting with a representative of Inntrepreneur, who took them through two brochures, which, under the heading “Freedom to plan with confidence”, spoke of the freedom and security provided by the lease. After summarising the beer tie, the brochure stated, without mentioning the undertaking given to the Secretary of State, that a number of its houses would be allowed to buy out of the tie as of November 1992, and that the entire Inntrepreneur estate would be free after March 1998. The representative also told the defendants that the rent had been set at a level that reflected the release, which, being a legal requirement, did not need to be included in the lease. The defendants proceeded with the purchase, which was concluded in July 1992.
In February 1997 the Department of Trade and Industry released Inntrepreneur from its undertaking. In proceedings taken by the claimant to enforce the tie, the defendants counterclaimed for a declaration that the assignment had been taken in consideration of a contractual agreement, whereby Inntrepreneur had warranted that the tie would be removed by March 1998. This was disputed by the claimant which pointed to, inter alia: (i) a declaration in the brochure that in the event of any inconsistency between its contents and current legal documents, the latter should prevail; and (ii) a clause in the lease providing that its terms were to remain in full force unless expressly varied. The claimant contended that those provisions should operate as an entire agreement clause, the purpose of which, according to Lightman J in Inntrepreneur Pub Co v East Crown Ltd [2000] 41 EG 209 *, was: “to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement “upon which to found a claim… to the existence of a collateral warranty”.
Held: The defendants’ counterclaim was upheld.
The claimant had rightly submitted that a collateral contract of the kind alleged had to be proved strictly: see Heilbut, Symons & Co v Buckleton [1913] AC 30 and the further observations of Lightman J in Inntreprenneur. Nevertheless, it was plain that the defendants were not prepared to proceed without being satisfied of an eventual release from the tie. Their reason for not alerting their solicitors to the matter of the tie was that they had accepted the assurance of the claimant’s representative that there was no need to include a corresponding provision in the lease. That assurance was part and parcel of a well presented sales pitch relating to important terms of the contract, and was intended to form part of it. It was therefore unnecessary to “thresh through the undergrowth”, and neither could it be considered that the defendants were relying upon some chance remark.
*Editor’s note: The entire contract clause ran as follows:
14.1 Any variations of this Agreement which are agreed in correspondence shall be incorporated in this Agreement where that correspondence makes express reference to this Clause and the parties acknowledge that this Agreement (with the incorporation of any such variations) constitutes the entire Agreement between the parties.
Martin Rodger (instructed by Masons) appeared for the claimant; Giles Powell (instructed by Jerrard Saunders Donn) appeared for the respondents.
Alan Cooklin, barrister
