Five-year lease of tied public house – Lessee having option to renew conditional upon due observance of tie provisions – Whether provisions too widely drawn for purpose of EC block exemption – Whether option would also be invalidated if tie provisions held to infringe Article 85 of EC Treaty
(Heard sub nom Byrne v Tibisco Ltd as a related appeal with Courage Ltd v Crehan [1999] PLSCS 145)
By a deed dated 11 May 1988 made with the landlord, Mr Byrne (the lessee) took a five-year lease of a public house in Shirley for an initial period of five years, with the benefit of an option to renew for a further period of five years. The option was conditional, inter alia, on the lessee having: (a) observed all his obligations up to the end of the initial period; and (b) purchased from the landlord or its nominated suppliers at least the minimum barrellage of designated beer and the minimum gallonage of designated liquors. Elsewhere in the lease there were provisions (the tie provisions) setting various sales targets and preventing the lessee, subject to certain exceptions, from obtaining his supplies from persons other than the landlord or its nominees. The tie provisions corresponded for the most part to the conditions laid down in Commission Regulation 1984/83 for block exemption from Article 85 of the EC Treaty.
The lessee contended, however, that the block exemption did not apply because of the presence of various provisions (the extra provisions) not to be found in the regulation: notably clause 2(8), which prohibited the lessee from engaging in any business other than the business of running a Courage public house on the premises; and clause 4(2)(b)(ii), which qualified an exemption (otherwise conforming with the regulation) in respect of branded liquors not supplied by the landlord or his nominees, with the proviso that there had to be a bona fide demand from the lessee’s customers for such brands. The lessee appealed against the trial judge’s ruling that the extra provisions could be ignored as being incapable, on the facts, of producing an uncompetitive effect. The landlord contended that the option and the tie provisions had to stand or fall together; and, consequently, if it were to be held that the block exemption did not apply and that the tie provisions were avoided by Article 85, then, contrary to the view of the trial judge, the lessee would lose the benefit of the option (the severance issue).
Held:
1. The extra provisions took the agreement outside the block exemption. The factual approach taken by the judge, while correct for determining alleged infringements of Article 85, was not appropriate when considering the applicability of the block exemption, which was primarily concerned with categorising or characterising particular clauses: see Cabour SA v Automobiles Peugeot SA [1998] 5 CMLR 679 and Hydrotherm Geratebau GmbH v Compact de Dott Ing Mario Andredi [1984] ECR 2999. Since each of the extra provisions introduced on its face a “restriction on competition”, it was unnecessary at this stage for the lessee to show that they did in fact restrict competition in a material way or distort the market .
2. Assuming that the lessee went on to show that Article 85 had been infringed (an issue not before the court), the severance issue had to be resolved in accordance with English law, where the question was whether, with the excision of the offending clauses, “the contract would be so changed in its character as not to be the sort of contract that the parties intended to enter at all”: see Chemidus Wavin Ltd v Société pour la Transformation et l’Exploitation des Resines Industrielles SA [1978] 3 CMLR 514. Since the conditions for the exercise of the option looked primarily at the past performance of the lessee, and since an important part of that performance was the observance of the tie provisions, such performance had to be viewed as an integral aspect of the consideration given for the option. Accordingly, the landlord’s appeal on the severance issue should be allowed: Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd [1975] AC 561; Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 EGLR 33; Inntrepreneur Estates (GL) Ltd v Boyes [1993] 2 EGLR 112; Richard Cound Ltd v BMW (GB) Ltd [1997] EuLR 277; Marshallv NM Financial Management Ltd [1997] 1 WLR 1527 considered.
Mark Brealey (instructed by Phillip Ross) appeared for Mr Byrne; Nicholas Green QC and Martin Rodger (instructed by Masons) appeared for Inntrepreneur Beer Supply Co Ltd.
Alan Cooklin, barrister
