Landlord and tenant — Agreement for lease — Licence to occupy — Whether Unfair Contract Terms Act applies to agreement for lease — Whether claim for damages can be set off against rent — Whether licence void under Article 85(1) of the Treaty of Rome — Whether licence fees payable
By an
agreement for a lease dated August 12 1994, and pending the granting of the
lease, the plaintiff occupied pub premises as a licensee upon terms that the
plaintiff pay a licence fee equal, on a daily basis, to the first year’s rent
under the draft lease and otherwise be subject to the terms of the draft lease.
Under the draft lease the plaintiff was obliged to purchase from the first
defendant specified beers under a tie. Clause 4.1 of the draft lease provided
that rent is to be paid ‘without any deduction or set-off whatsoever’. The
plaintiff incurred arrears of licence fees and ceased purchasing beers under
the tie clause. On March 17 1997 the plaintiff issued proceedings against the
defendants contending, inter alia, that the beer tie was contrary to
Article 85(1) of the Treaty of Rome and claiming damages based on the increased
beer prices paid under the tie, the loss of price benefits in purchasing beer
elsewhere and the excess licence fee, which did not reflect the beer tie
obligations. On April 24 1997 the first defendant served notice to quit on the
plaintiff. By its defence the first defendant counterclaimed for possession,
arrears of the licence fees and mesne profits. The plaintiff sought
relief from forfeiture. On the hearing of a summons issued by the first
defendant under Ord 14 of the RSC, the first defendant conceded for the
purposes of the summons only that it was arguable that the beer tie was
contrary to Article 85(1) and that that infringement conferred on the plaintiff
a claim for damages. On that basis that the plaintiff’s defence to the Ord 14
summons was: (1) a right to set off its damages claim against the admitted
arrears of licence fees; and (2) by reason of the breach of Article 85(1), the
agreement for lease was void so that no liability to pay the licence fee arose.
and it was agreed that the plaintiff should have relief from forfeiture upon
certain terms. (1) On the face of clause 4.1 of the draft lease, there was no
right to set off the plaintiff’s damages claim against arrears of licence fees.
The Unfair Contract Terms Act 1977 has no application because the agreement was
‘a contract … [relating] to the creation … of any interest in land’ within the
meaning of para 1(b) of Schedule 1 to the Act: see Electricity Supply
Nominees Ltd v IAF Group Ltd [1993] 2 EGLR 95. There was
insufficient connection between the defendant’s claim for licence arrears and
the plaintiff’s cross-claims for damages to justify set off (assuming clause
4.1 was not available). (2) If the beer tie infringes Article 85(1), then by
Article 85(2) the tie is severed from the lease provisions leaving the
remainder of the lease in being, including the obligation to pay rent. There
was no arguable basis that the covenant to pay rent infringed Article 85(1). If
the covenant to pay rent was void and illegal, the plaintiff’s occupation
could, at most, have been as tenant at will.
The following
cases are referred to in this report.
Electricity
Supply Nominees Ltd v IAF Group Ltd [1993] 1
WLR 1059; [1993] 3 All ER 372; (1992) 67 P&CR 28; [1993] 2 EGLR 95; [1993]
37 EG 155
Esso
Petroleum Co Ltd v Milton [1997] 1 WLR 938;
[1997] 2 All ER 593, CA
Inntrepreneur
Estates (GL) Ltd v Boyes (1993) 68 P&CR
77; [1993] 2 EGLR 112; [1993] 47 EG 140, CA
Inntrepreneur
Estates Ltd v Mason (1993) 68 P&CR 53;
[1993] 2 EGLR 189; [1993] 45 EG 130
Leon
Corpn v Atlantic Lines & Navigation Co Inc;
The Leon [1985] 2 Lloyd’s Rep 470
Martinali v Ramuz [1953] 1 WLR 1196; [1953] 2 All ER 892, CA
Wheeler v Mercer [1957] AC 416; [1956] 3 WLR 841; [1956] 3 All ER
631; [1956] EGD 248; (1956) 168 EG 520, HL
This was the
hearing of a summons issued by the first defendant, Inntrepreneur Pub Co, under
Ord 14 of the RSC in proceedings by the plaintiff, Star Rider Ltd, for damages
and other relief against the first defendant, and the second defendant, Courage
Ltd.
Robert Arnold
(instructed by Barron & Co) appeared for the plaintiff; Richard Field QC
and Martin Rodger (instructed by Masons) represented the defendant.
Giving
judgment, BLACKBURNE J said: This is an Ord 14 summons brought by the
first defendant (Inntrepreneur) for possession and arrears of licence fee due
under an agreement for lease dated August 12 1994. The agreement relates to a
public house in Kentish Town in North West London, called the Prince of Wales,
owned by Inntrepreneur. At all material times, the plaintiff has occupied the
premises under the agreement for lease.
The agreement
provides for the grant of a 20-year lease of the premises from August 12 1994
conditional on three matters occurring, all of which have either occurred or
been waived. No lease has in fact been granted because of the arrears of
licence fee which are the subject-matter of Inntrepreneur’s Ord 14 claim.
The plaintiff
took up occupation of the premises on the terms of clause 5 of the agreement.
That clause provides that occupation until completion of the lease or, if
earlier, termination of the agreement, should be as licensee only and that,
during the licence period, the plaintiff should pay to Inntrepreneur a licence
fee equal, on a daily basis, to: (a) the first year’s rent under the draft
lease (described as ‘the Concessionary Rent’), namely £21,666; and (b) the
insurance rent payable under the lease (described as ‘the Additional Rent’).
The clause also provides that the plaintiff should be subject in all respects
to the same terms contained in the lease (with Inntrepreneur having all of the
rights and remedies incidental to the relationship of landlord and tenant) as
if the lease had been granted, except that the agreement should not operate or
be deemed to operate as a demise of the premises and the plaintiff should not
acquire or be deemed to have acquired any interest in them during the licence
period.
Clause 8.1
provides that, without prejudice to any other right or remedy of Inntrepreneur,
if, inter alia, the plaintiff should commit any breach of its
obligations under the agreement, Inntrepreneur should have the power to
determine the agreement upon giving five working days’ notice in writing.
The annual
rent reserved by the lease (after the concessionary rent payable during the
first year) is £26,000 and is payable by equal quarterly payments in advance on
the first of September, December, March and June in each year (or, if not a
working day, then on the first working day thereafter). It is subject to upwards-only
five-year reviews. Additional rent is payable on demand.
By clause 4(1)
of the lease the plaintiff covenants:
To pay the
Rent, the Concessionary Rent and the Additional Rent on the due date without
any deduction or set-off whatsoever by variable direct debit or such other
means as the company …
— ie
Inntrepreneur —
may from time
to time specify …
Clause 4.4
provides for the payment of interest at 4% over National Westminster Bank base
rate on any overdue payment.
By clause 4.34
the plaintiff covenants to comply at all times with the terms of the first
schedule. The first schedule contains what are commonly known as ‘tie’
provisions. They require the plaintiff to purchase from Inntrepreneur, or its
nominee and from no one else, all such specified beers as the plaintiff should
require for sale in the premises. The beers in question are listed. A minimum
purchase order
QC, who, with Mr Martin Rodger, appears for Inntrepreneur, that that obligation
was released shortly after the plaintiff went into occupation. Para 12 obliges
Inntrepreneur during the term of the lease to use its best endeavours to supply
to the plaintiff, or procure the supply by its nominee, of such quantities of
the specified beers as the plaintiff may require and at the prices shown on
Inntrepreneur’s or the nominee’s price list.
Clause 6.8 of
the lease provides that Inntrepreneur may release the tie in whole or in part
by notice in writing and clause 6.9 provides that if such a notice is served or
if for any reason Inntrepreneur should be unable to enforce any of the tie
provisions or should be required to vary its pricing structure then, at
Inntrepreneur’s option, there is to be a rent review, additional to the regular
five-year rent review.
By the spring
of 1997 the plaintiff had fallen into arrears with the payment of the licence
fee due under the agreement for lease. By early April £8,000 or so was unpaid.
Over and above that it had effectively ceased to purchase its beer requirements
from Inntrepreneur or its nominee. The evidence strongly suggests that the
plaintiff had been purchasing beer outside the tie since the early months of
1996. The last consignment of beer, comprising 10.99 barrels, was bought from
the second defendant in December 1996, the previous consignment before that
being 2.05 barrels in July 1996 and 4.75 barrels in June 1996. To be contrasted
with this were the 220 barrels purchased in the first full year of the licence,
ie to August 26 1995. The plaintiff itself admits that, with the exception of
the December 1996 consignment, it has bought its beer out of tie since
mid-1996.
The second
defendant was formerly known as Courage Ltd and was Inntrepreneur’s nominee for
the purposes of the agreement for lease.
It was the
plaintiff, however, which was the first to resort to litigation. Doubtless
believing that attack is the best form of defence, it issued the writ in the
action on March 17 1997. The statement of claim endorsed on the writ makes the
following claims. First, that the lease and/or the tie and/or the rent
covenants contained in the lease are void pursuant to Article 85(2) of the Rome
Treaty as being in breach of Article 85(1). The bases for this, as pleaded,
are, first, that the tie ‘forecloses the open market by restricting the
potential outlets available to competitors of the defendants in the supply of
beer and preventing their competitors from supplying to the plaintiff’; and,
second, that ‘the lease and/or the beer tie and/or the rent covenants places
the plaintiff at a competitive disadvantage and amounts to price
discrimination, by reason of his obligation under the beer tie contained in the
lease to purchase his beer at full list price, which price was and is higher
than he could have obtained in the open market, and/or to pay a rent, subject
to upward only review, without discount to reflect the beer tie and/or his
obligation to purchase beer at full list price’: see paras 6 to 8 of the
statement of claim.
Second, the
plaintiff claims that Inntrepreneur’s and Courage’s infringements of Article 85
are ‘a breach of statutory duty and/or other duty owed by the defendants to the
plaintiff’ (see para 9), as a result of which the plaintiff claims to have
suffered loss and damage (see para 10). The damages which are claimed are said
to be of a three-fold nature: (1) the extra costs the plaintiff has had to pay
through having to purchase its beer requirements from Courage rather than on
the open market (I refer to this for short as ‘the excess beer price’); (2) the
financial and other benefits (other than discounts on beer purchased) which the
plaintiff would have received from other suppliers if it had not been
restricted by the tie; and (3) the cost consequences to the plaintiff of the
fact that the rent (or licence fee) under the lease (or agreement for lease)
‘was and is not a reasonable rent and/or … was and is not discounted to reflect
the obligation to purchase under the beer tie as it ought’, and of the further
fact, as it is claimed, that ‘a rent of the premises under a lease that was not
the subject of a tie would be significantly lower than the rent under the
lease’.
Third, the
plaintiff claims that Inntrepreneur, Courage and others agreed or engaged in
concerted practices contrary to Article 85: see paras 11 to 15.
Fourth, by
para 16, the plaintiff mounts a restitutionary claim for the repayment to it of
the excess beer price. This is based upon a contention that, because of the
unlawful nature of the tie, it was unlawful for Inntrepreneur and Courage to
charge the plaintiff the list price for beers supplied under the tie.
Fifth, by para
17, the plaintiff claims that because ‘the lease and/or the beer tie and/or the
rent covenants are void and unlawful pursuant to Article 85(2) … [the
plaintiff] … occupies the premises under an implied periodic tenancy at a
reasonable rent and/or … is entitled to a declaration that [it] has an implied
yearly, or in the alternative, a periodic tenancy at a reasonable rent’.
The plaintiff
then claims against Inntrepreneur: (1) damages for breach of Article 85; (2) a
declaration that it has a yearly, alternatively a periodic, tenancy of the
premises at a reasonable rent; and (3) restitution of sums unlawfully charged.
There are also claims against Courage with which I am not concerned on this
summons.
On April 24
Inntrepreneur served the plaintiff with written notice to quit under clause 8.1
of the agreement. By then the licence fee arrears amounted to just over £9,900.
On April 27 Inntrepreneur and Courage served their defences. Inntrepreneur also
counterclaimed for possession of the premises and arrears of rent and other
payments totalling £9,902.72; interest pursuant to clause 4.4 of the lease;
damages; and mesne profits at the rate of £26,000 pa from May 27 until
delivery up of possession.
On June 3 the
plaintiff served a reply and defence to counterclaim. It also counterclaimed
against Inntrepreneur for relief against forfeiture. On June 23 Inntrepreneur
served a defence to the counterclaim denying the plaintiff’s entitlement to
relief against forfeiture, alternatively contending that relief should only be
granted on terms that all outstanding sums claimed be paid together with costs.
On June 27 Inntrepreneur issued the summons for relief under Ord 14 which is
now before me.
At the
conclusion of Mr Field’s submissions on behalf of Inntrepreneur, the hearing
before me took an unexpected turn. Mr Robert Arnold, for the plaintiff, sought
a short adjournment following which I was told that his client wished to
advance no argument in opposition to Inntrepreneur’s application, but wished
instead merely to claim relief against forfeiture. I was also told that,
subject only to the basis upon which Inntrepreneur’s costs should be taxed, the
terms upon which relief should be granted were agreed. I say that this was an
unexpected turn since, hitherto, the plaintiff had pursued its opposition to
Inntrepreneur’s application with great vigour.
In the event,
judging by Mr Arnold’s 14-page skeleton argument, his summary of 35 issues and
a list of no less than 34 authorities to which he intended to refer me, I have
been spared much time and argument. The matter was therefore left on the basis
that I would consider and give judgment on the matters raised by Mr Field and,
assuming I found in his favour (which I do), would grant relief against
forfeiture — which Inntrepreneur would not oppose — on the terms agreed between
counsel.
Implicit in
this was an acceptance by the plaintiff that the claim, set out in the statement
of claim, that the covenant to pay rent, and not just the tie, is void as
contravening Article 85(1) is either unarguable or, if arguable, is no longer
raised as a defence to Inntrepreneur’s claims. The reason for this, as I shall
explain when I come to that part of the plaintiff’s claims later in this
judgment, is that, if the point is a good one, it leads, according to Mr Field,
to the conclusion that the plaintiff is in truth no more than a tenant at will,
enjoying no protection under Part II of the Landlord and Tenant Act 1954, and
that its tenancy was terminated by the making of Inntrepreneur’s counterclaim
for possession, leaving it with no right to claim relief against forfeiture.
I come then to
explain why, in my judgment, Inntrepreneur establishes its claim to Ord 14
relief.
For the
purposes of this summons only, Inntrepreneur concedes that it is arguable that
the tie is contrary to Article 85(1). It also concedes, again for the purposes
of this summons only, that it is arguable that the infringement of Article
85(1) confers on the plaintiff a claim in damages against it. It is on that
basis that I consider the issues that
breach of Article 85(1), where the essential claim is that the tie forecloses
the market at the beer supply level (ie that the tie restricts the potential
outlets available to competitors of Inntrepreneur and Courage for the supply of
beer, and therefore prevents or hinders competitors from supplying beers)
confers on the plaintiff, who is a retailer with access to the market, any
cause of action in damages against Inntrepreneur. I see considerable force in
the submission of Mr Field that tenants under leases which include a beer tie
are not within the class intended to be protected by Article 85, and that if
the lease (as distinct simply from the tie) does breach Article 85, the lease
is an illegal contract and the tenant may not found any cause of action on it.
These, however, are issues which will have to be decided when the plaintiff’s
claim comes to trial.
Fundamental to
the plaintiff’s defence to Inntrepreneur’s Ord 14 application are: (a) a right
to set off its damages claim against the admittedly outstanding licence fees;
and (b) the contention that, by reason of Inntrepreneur’s breach of Article
85(1), the agreement for lease is void with the result, so it is claimed, that
there is no obligation to pay the licence fee. The plaintiff accepts that it
has, and has at all material times, been in occupation of the premises, but
says that its occupation is on the terms of an implied yearly or periodic
tenancy. It says that the tenancy is not at a rent equivalent to the licence
fee which it in fact paid (when it did), but at the much lesser rent of £16,300
pa.
Inntrepreneur’s
answer to these claims are: (a) that the agreement for lease, through clause
4.1 of the lease, contains an express exclusion of any right of set off; (b)
that even if one disregards the exclusion of set off provided by clause 4.1,
the same clause provides for payment of rent by direct debit, which is the
equivalent of a requirement to make payment of the rent (or licence fee) in
cash against which there can be no set off; and (c) that the plaintiff’s claims
are, in any event, not of a nature to give rise to an equitable set off against
the particular outstanding licence fees which are claimed.
As regards
Article 85, Inntrepreneur argues: (a) that the court can sever the tie, leaving
the remainder of the agreement for lease intact including, in particular, the
rent (or licence fee) obligations; (b) that the claim that Article 85(1)
impeaches the rent reserved by the lease (or agreement for lease), with the
result that the lease (or agreement for lease) is void or otherwise
unenforceable, is unarguable; but (c) if the lease (or agreement for lease) is
void or otherwise unenforceable as claimed, there is no basis for implying a
yearly or other periodic tenancy at a rent to be fixed by the court. Rather,
the plaintiff is a tenant at will, whose tenancy has been terminated by the
making of the counterclaim for possession with the result that: (a) the
plaintiff has no defence to the possession claim; and (b) there is no basis for
granting any relief against forfeiture.
With that
introduction I now consider the individual issues.
Set off
An affidavit
filed on the plaintiff’s behalf by Mr Mark Barron, the plaintiff’s solicitor,
asserts a right to set off the plaintiff’s claims against Inntrepreneur’s
claims, notwithstanding clause 4 of the lease. It states that Mr Carty (a
director of the plaintiff and its moving spirit) was ‘not able to negotiate any
terms of the lease’. I consider therefore whether there is any arguable basis
for the right of set off which is asserted.
(1) Clause 4.1 of the lease
Clause 4.1
provides in terms that rent is to be paid ‘without any deduction or set-off
whatsoever’. In my judgment, that wording is wide enough to embrace the damages
claims which the plaintiff makes. On the face of it there is therefore no right
to set off those claims against the unpaid licence fees.
(2) Unfair Contract Terms Act
1977 (UCTA)
Because the
lease terms are Inntrepreneur’s written standard terms of business, I consider
next whether the exclusion of the right of set off contained in clause 4.1 is
caught by section 3, read with section 13, of UCTA. If it is, it is for
Inntrepreneur to satisfy the requirement of reasonableness laid down by that
Act.
In my
judgment, UCTA has no application. This is because, by para 1 of Schedule 1 to
UCTA, it is provided that sections 2 to 4 do not apply to:
(b)
any contract so far as it relates to the creation … of any interest in land …
The set off
provision is contained in the tenant’s covenant to pay rent. It is concerned
with the amount of rent that the tenant must pay. It, no less than the covenant
of which it forms a part, is integral to the agreement by Inntrepreneur to
grant a lease of the premises in that the rent payment is part of the
consideration for the agreement to grant the lease. The grant of a lease
involves the creation of an interest in land. An agreement for the grant of a
lease is a contract for the creation of an interest in land. It is therefore
directly within para 1(b). It is none the less a contract within para 1(b)
where, as here, under the terms of the agreement, no interest in land is to
arise until the lease is actually granted.
In any event,
the point is covered by authority, at any rate where a clause of this nature is
contained in a lease (as distinct from an agreement for lease). In Electricity
Supply Nominees Ltd v IAF Group Ltd [1993] 1 WLR 1059*, the lease
contained a covenant by the tenant, ‘To pay the rent and all other sums payable
under the lease … without any deduction or set-off whatsoever …’. The landlord
sought an Ord 14 judgment for arrears of rent. The tenant counterclaimed for
damages for breach of the landlord’s repairing covenant. The tenant argued that
the restriction on the right of set off imposed by the lease was rendered
ineffective by section 3 of UCTA. Holding that the lease was exempt from the
provisions of section 3 by virtue of para 1(b) of Schedule 1 to UCTA,
Adrian Hamilton QC (sitting as a deputy judge of the High Court) said, at
p1063G:
*Editor’s
note: Also reported at [1993] 2 EGLR 95
The demise is
made in consideration of the payment of rent and of the tenant’s covenants. The
reservation of rent in this demise, and the covenants to pay rent, additional
rent and other sums are an integral part of the creation of the interest in
land by the demise. The repairing covenant is also an integral part of the
contract for the creation of the interest in land. The words ‘relates to’ the
creation of an interest in land are, in my judgment, amply wide enough to cover
both the covenant to pay rent and other sums including the anti-set-off
provision, and the repairing covenant.
He rejected a
submission by Mr Mark West, for the tenant, that the phrase ‘so far as’ appearing
in para 1(b) meant that para 1(b) only excluded from the
operation of sections 2 to 4 of UCTA the demise itself. In rejecting that
argument the judge said, at p1064A:
I do not
consider that para 1(b) of Schedule 1 should be restricted as narrowly
as Mr West submits. Indeed, on his construction, it is difficult to identify
the purpose of paragraph 1(b) of Schedule 1, as it is hard to think of a
term in the demise itself on which sections 2 to 4 could bite.
I respectfully
agree.
Even if,
contrary to his submission, UCTA does apply to the set off provision, Mr Field
submitted that it has no application to the requirement in clause 4.1 that
payment be made ‘by variable direct debit’. He referred me in this connection
to Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938 in which the
defendant sought to set off against the plaintiff’s claim for unpaid deliveries
of petrol a claim for damages for alleged repudiation by the plaintiff of two
licence agreements. The majority of the Court of Appeal in that case held that
a direct debit payment requirement is, in general, a requirement for payment by
cheque, and therefore the equivalent of a payment in cash. They held that it
was of that nature in the case before them. The result was that the defence of
set off was precluded. The majority came to that view, notwithstanding that it
held that another clause in the agreements, precluding the defendant from
withholding for any reason
foul of UCTA as being unreasonably wide.
Given my
conclusion regarding the application of para 1(b) I need not come to any
view on this point. I would, in any event, have felt unease about applying that
decision to this case. It seems to me to be artificial to argue that, even if
an express provision precluding set off is within UCTA (assuming that
para 1(b) does not exempt the lease) and must therefore be justified, an
implied provision precluding set off inherent in the requirement for payment by
direct debit is not.
(3) Insufficient connection
The argument
here assumes that clause 4.1 is not available. It is now well established that
cross-claims can only be the subject of an equitable set off (which is what the
plaintiff must establish) if two conditions are satisfied: first, that the
counterclaim is at least closely connected with the same transaction as that
giving rise to the claim; and, second, that the relationship between the
respective claims is such that it would be manifestly unjust to allow one to be
enforced without regard to the other: see Simon Brown LJ in Esso Petroleum
Co Ltd v Milton, at p950.
Mr Field
submitted that the plaintiff’s damages claims (whether under Article 85 or
otherwise) do not satisfy that test. In my judgment, he is correct.
Mr Field
submitted that it is only a claim which relates to the quality of occupation of
the demised premises which should be recognised as establishing a set off
against outstanding rent. He referred me to a number of authorities in which
set off has been allowed in such circumstances. All were cases of breach of a
landlord’s repairing obligation. He drew my attention to what he submitted is
the analogous position in the case of time charters. He drew my attention in
particular to a passage in the judgment of Hobhouse J in The Leon*
[1985] 2 Lloyd’s Rep 470, at p474, emphasising that the defence of equitable
set off has not been ‘reduced to an exercise of discretion’ but ‘has to be
granted or refused by an application of legal principle’.
*Editor’s
note: See Leon Corpn v Atlantic Lines & Navigation Co Inc
Without having
had the benefit of contrary argument on the point, I am unwilling to attempt a
definition of what must be established in order to give rise to a defence of
equitable set off against a landlord’s claim for unpaid rent. I will only say
that I would ordinarily expect the nature of the claim to be as Mr Field
submits.
Whatever the
true scope of the defence of equitable set off, in my view, there is an
insufficient connection in this case between Inntrepreneur’s claim for unpaid
licence fees and the plaintiff’s cross-claims to justify a set off (assuming
clause 4.1 is not available). I say that for essentially three reasons:
1. The tie,
the existence of which grounds the cross-claim, does not prejudice or hinder
the plaintiff’s physical use and occupation of the premises, much less does it
affect the physical condition of the premises themselves. Nor does it affect
the quality of the tenant’s use of those premises. At most, it affects the
extent to which the plaintiff is able to derive profit from his use of the
premises.
2. Most of the
outstanding licence fees relate to a period when, on the evidence, the
plaintiff was purchasing its beer requirements free of tie. According to
Inntrepreneur’s counterclaim the unpaid balance of licence fee was only £663 as
at February 23 1996. Thereafter, the outstanding balance fluctuated until it
attained the agreed figure of £9,902.72 by May 27 1997. It is not, therefore,
as if the plaintiff’s inability from early 1996 onwards to pay the licence fee
can be said to flow from the constraints of a tie which, according to the
evidence, it chose thereafter to ignore.
3. The tie was
one which was voluntarily accepted by the plaintiff. There is no suggestion
that Inntrepreneur has not observed its obligations under it. It is only by
having recourse to Article 85 in order to avoid the tie that the tenant is able
to mount the claim which is said to give rise to the right of set off. So far
from the relationship between the claims being such that it would be manifestly
unjust to allow one to be enforced without regard to the other, it would, in my
view, be unjust to allow Inntrepreneur’s undoubted right to immediate payment
of the outstanding licence fee to be defeated, or at any rate delayed, pending
trial of a cross-claim of this nature.
Over and above
these considerations I also bear in mind that the quantum of the plaintiff’s
claims is highly speculative. At one stage Mr Carty claimed that the plaintiff
had purchased approximately 1,000 barrels of beer from Courage under the tie.
By assuming an excess beer price of £50 per barrel, the plaintiff’s claim
against Inntrepreneur was said to be no less than £50,000 on beer discounts
alone. When Inntrepreneur challenged that evidence and suggested that the
number of barrels bought under tie was no more than 340, the plaintiff seems to
have conceded that that figure, or possibly even less, was indeed the amount.
Apart from the question of barrelage, the extent of the excess beer price is
also very much in question. In a valuation of the premises conducted on behalf
of the plaintiff by Mr JP Wade frics,
an assumption is made that the discount (ie the excess beer price) is no more
than £20 per barrel. On this basis the cross-claim, so far as excess beer price
is concerned, is no more than £6,800. That is considerably less than the amount
of Inntrepreneur’s claim for unpaid licence fees.
Article 85
So far as
material Article 85 provides as follows:
(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
as 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.
As I have
mentioned, Inntrepreneur concedes — but for the purposes of this Ord 14 summons
only — that the tie infringes Article 85(1). The consequence, applying Article
85(2), is to sever the tie provisions from the lease leaving the remainder of
the lease in being including, in particular, the covenant to pay rent.
That this is
the position is well established by two decisions involving, as it happens,
leases which, so far as material, were in the same terms as the lease in this
case. Those decisions are Inntrepreneur Estates Ltd v Mason
[1993] 2 EGLR 189 and Inntrepreneur Estates (GL) Ltd v Boyes
[1993] 2 EGLR 112.
In the former
case, Mr Michael Barnes QC (sitting as a deputy judge of the High Court)
concluded: (a) that the tie was severable from the lease; (b) that there was no
reason to excise the obligation to pay rent; and (c) that the remainder of the
lease remained in being and enforceable between the parties.
In the latter
case Ralph Gibson LJ, with whom the other members of the court agreed, came to
the same conclusion. At pp115M–116 he said:
It is
conceded by the plaintiffs, although the fact will be disputed, that it is
arguable that the tie provisions in the lease may be shown at trial to be
‘automatically void’ under article 85(2). Upon that supposition the automatic
nullity under article 85(2) applies:
… only to
those elements of the agreement which are subject to the prohibition, or to the
agreement as a whole if those elements do not appear severable from the agreement
itself. Consequently, all other contractual provisions which are not affected
by the prohibition, since they do not involve the application of the Treaty,
fall outside The Community law.
See Technique
Minière v Maschinenbau Ulm GmbH [1966] CMLR 357 at p376.
Since the
automatic nullity under article 85(2) affects only those clauses which offend
article 85, the effect of that nullity upon the rest of the agreement is then a
matter for the domestic law which governs the particular contract: see Chemidus
Wavin Ltd v Société pour la Transformation et l’Exploitation des Resines
Industrielles SA [1978] 3 CMLR 514 per Buckley LJ at p519 para 18,
and Goff LJ at p522 para 29.
He then went
on to consider a submission that the covenant to pay rent contained in the
lease also infringed Article 85(1). Having rejected that submission, he then
considered what the effect was of excising the tie provision and, in
particular, whether it was possible to sever the tie provisions so as to leave
the remainder of the lease (including the rent covenant) unimpaired and
enforceable. He held that it was. In coming to this conclusion he said, at
p117L:
Upon the
evidence in this case this was, in my judgment, an ordinary lease of a public
house upon ordinary terms and containing a beer tie. The plaintiffs were both
brewers and landlords. They wanted to sell their beer and obtain a rent for the
public house. There was ample consideration to support the 20-year agreement
apart from the beer tie, in particular the promise to pay rent and to carry out
repairs. The fact, if it be the fact, that the plaintiffs would not have
contemplated granting a lease of the public house without the tie does not
cause the invalidity of the tie, so to change the nature of the agreement or so
to disappoint the main purposes of the plaintiffs that the tie provision can be
regarded in the law of this country as unseverable. Such a conclusion would, in
my judgment, be wrong and unjust upon any test for severance which has been
applied in the cases.
The term in
the lease in clause 6(1) which I have read, that the invalidity whether now or
hereafter of any provision of this lease should not affect the validity of the
remaining provisions is, in my judgment, relevant to this part of our decision.
It could not, of course, prevail to save any provision which is void for some
independent and demonstrable reason such as that the entire lease must be
regarded as void because of criminal purpose. Where, however, the argument on
severance is based upon submissions as to the main consideration of the lease,
or the main purpose of the landlords in making the lease, then the fact that
the parties agreed, as I think they did, that unenforceability of the tie
provision should not avoid any other provision of the lease may be regarded as
decisive.
Those
observations apply equally to this case where there is an identical provision
to clause 6.1 of the lease in that case.
That only
leaves the claim that the covenant to pay rent is also unlawful as infringing
Article 85(1). There were claims of a like nature which were considered and
rejected in both Mason and Boyes. The claim is no less
misconceived in this case.
I need say
very little about this aspect of the plaintiff’s claims because, as I mentioned
earlier, implicit in the plaintiff’s application for relief against forfeiture
is an abandonment of any contention that the rent covenant is in some way
tainted by the tie and therefore in breach of Article 85(1).
The evidence
said to support the claim is a lengthy affidavit by Terence Burke — director of
undergraduate studies in Westminster Business School and an economics lecturer
at the University of Westminster. The bulk of the affidavit is concerned with
the effect of the tie provisions in the lease. What little there is about the
rent covenant does not begin to sustain any kind of arguable case of a breach
of Article 85(1). Any interpretation of the affidavit which might suggest a
breach of the Article was comprehensively answered in an affidavit by Dr
William Bishop, professor of the economics of competition law at the College of
Europe in Bruges.
Like Michael
Barnes QC in the Mason case and the Court of Appeal in the Boyes
case, I can see no arguable basis for suggesting that the covenant to pay rent
(or the licence fee pending grant of the lease) infringes Article 85(1).
If the
lease is void
It is just as
well that the claim is unarguable that the covenant to pay rent under the lease
(and the licence fee under the agreement for lease) infringes Article 85(1)
because, if it had been well founded, I can see no basis upon which the
plaintiff could resist an order for possession. If it were well founded, and
the covenant excised from the lease, it would be extremely difficult to see
that what was left of the lease would amount to any kind of enforceable
agreement between the parties. Nevertheless, by para 17 of the statement of
claim the plaintiff claims that, on the basis that the lease as a whole or in
particular the covenant to pay rent is void, its occupation of the premises is
under an implied yearly tenancy, alternatively an implied periodic tenancy.
The claim to
an implied tenancy on this footing is bad because, whereas the court will be
willing to imply a tenancy where a person is in occupation with the owner’s
consent paying rent but the actual agreement reached is for some reason
invalid, for example for want of formality or because it is an attempt to
create an interest which cannot exist as a matter of law, there can be no scope
for the application of such a principle when the very agreement to pay rent is
void and illegal. A fortiori, if the whole agreement under which
occupation is taken and the rent paid is void and illegal.
In the former
case, in the absence of any other explanation, the person in occupation paying
the rent is presumed to occupy under an implied periodic tenancy (and the rent
is what the person in occupation has in fact been paying). In the latter case,
the court is prohibited from having regard to the payment of the rent because
the obligation to pay it was itself unlawful and illegal.
There would,
in any event, have been no basis for implying a periodic tenancy at a
reasonable rent. Implication of a periodic tenancy based upon the tenant’s
occupation with the landlord’s consent presupposes payment of rent at a given
rate (or at least an agreement to pay rent at some given rate). It is the rent
paid or agreed to be paid which, with the tenant’s occupation, forms the basis
of the implication. There is thus no scope for ignoring the rent actually paid
(or agreed to be paid), as the plaintiff would have it, yet implying a periodic
tenancy on the basis of some hypothetical reasonable rent.
If, therefore,
I had acceded to the claim that the covenant to pay rent was in truth void and
illegal (as being in contravention of Article 85 and punishable by a fine under
Article 15(2) of Council Regulation 17), the plaintiff’s occupation could, at
most, have been as a tenant at will. As such it would have enjoyed no security
of tenure under Part II of the Landlord and Tenant Act 1954 (see Wheeler
v Mercer [1957] AC 416) and would have been terminated on the making of
Inntrepreneur’s counterclaim for possession: see Martinali v Ramuz
[1953] 1 WLR 1196.
Forfeiture
It follows
from my conclusion that there is no set off in respect of the plaintiff’s
damages claims and from my further conclusion that the only void part of the
agreement for lease is the tie which can be excised leaving the remainder of
the agreement in being, including, in particular, the plaintiff’s obligation to
pay the licence fee, that the agreement has been terminated by forfeiture:
there is no dispute that, at the date of the counterclaim, £9,022.72 was
outstanding.
On this basis
Inntrepreneur is entitled to possession, subject only to what it accepts is the
plaintiff’s right to apply for relief. As I mentioned earlier in this judgment,
it was agreed between counsel that, assuming I came to this conclusion,
Inntrepreneur would not oppose the plaintiff’s application for relief subject
to payment of the outstanding licence fee, which as at December 5 amounted to
£30,831.02 inclusive of contractual interest (further instalments of licence
fee having fallen due since the making of the counterclaim), and to payment of
Inntrepreneur’s costs. The costs are of Inntrepreneur’s counterclaim for
payment and possession, including its costs of the Ord 14 summons and of the
plaintiff’s counterclaim for relief.
In the circumstances,
I will grant relief against forfeiture and leave it to counsel to agree the
precise form of order. I indicated on Friday, after argument, that
Inntrepreneur’s costs should be taxed, in default of agreement, on the standard
basis.
