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.
plc v Gemmell
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.
and another v Gemmell
had no application to the beer tie; the two conditions in Delimitis v Henninger
Bräu AG [1991] ECR I-935 were not satisfied.
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.
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.
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.
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 arrears of rent, and the first plaintiff and the
second plaintiff, Centric Pub 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 October
29 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
December 1 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 April 1 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 August 11
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
December 1 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 June 25
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 December 1 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 December 1 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 April 19
1996 until August 1996, when he countermanded the direct debit instructions. He
fell into arrears with the rent. By a letter dated October 9 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
October 17 1996, claiming possession of the Red Lion and arrears of rent. On
December 23 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 May 1
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 June 11 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 leases were void from
the inception of each lease pursuant to Article 85(1) and (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
November 30 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 September 25 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 December
17 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; [1993] 26 EG 123
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 at will, deny the surrender
and assert the continuation of the earlier 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 September 25 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 August 5 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 February 14 and 24 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 August 22 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 October 28 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 cannot accept that that
argument is correct. In my judgment, the judge was 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 July 30 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 [1994]
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,
July 30 1993, Mitchell J; Inntrepreneur Estates plc v Smyth,
October 14 1993, Sir Peter Pain; Matthew Brown plc v Campbell,
November 11 1997, Mr Michael Tugendhat QC; Parkes v Esso Petroleum Co
Ltd, February 11 1998, Sir Richard Scott V-C; and Trent Taverns Ltd
v Sykes, February 18 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 March 25 1997, Judge Peter Crawford QC, and Star Rider Ltd v Inntrepreneur
Pub Co [1998] 1 EGLR 53*.
*Editor’s
note: Also reported at [1998] 16 EG 140
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.
