ARTICLE
1 August 2023

Tied Pub Regulation Upheld By Court Of Session

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Shepherd and Wedderburn LLP

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On 7 July 2023, the Inner House (First Division) issued its opinion in an appeal brought by Greene King against a 2022 judgment of Lord Harrower rejecting its judicial review challenge...
UK Real Estate and Construction
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On 7 July 2023, the Inner House (First Division) issued its opinion in an appeal brought by Greene King against a 2022 judgment of Lord Harrower rejecting its judicial review challenge to the Tied Pubs (Scotland) Act 2021 (TIPSA). The court refused the appeal and affirmed Lord Harrower's decision.

Green King's objection to TIPSA was twofold: first, and most important for present purposes, was the claim that it had intruded on matters reserved to the UK Parliament under the Scotland Act (specifically the reservation of "competition" matters); and, second, was the assertion that TIPSA impermissibly interfered with Greene King's rights under Article 1, Protocol 1 of the ECHR.

Context

TIPSA aims to improve the position of tied pub tenants by introducing a Scottish Pubs Code to govern the landlord and tenant relationship, along lines already developed in England & Wales. The code (which has still to be introduced) is to be designed (a) to promote fair and lawful dealing by the landlords in relation to the tenants, (b) to ensure that the tenant is not worse off than if they were not subject to the tie and (c) to ensure that the tie offers a fair share of risk and reward.

The position of pub ties (under which pub tenants are required to purchase their beer from their brewer landlord) under UK (and EU) competition law has a long history. As matters presently stand under the UK Competition Act, whilst pub ties are understood to have an anti-competitive effect (by restricting access by competing brands to tied pubs) they are generally exempt from prohibition under the Act.

Under the Scotland Act, there is a reservation to the UK Parliament of a topic described as "Competition" and specifically, "the regulation of anti-competitive practices and agreements; abuse of dominant position; monopolies and mergers". Acts of the Scottish Parliament which relate to reserved matters are beyond its competence.

The Inner House ruling

In essence, Green King's reserved matters challenge was that, because (a) pub ties are anti-competitive agreements (albeit exempt ones) and (b) TIPSA (and the Scottish Pubs Code) regulates the relationship between landlords and tenants under pub ties, then (c) TIPSA relates to the regulation of anti-competitive agreements and, thus, intrudes into the matter reserved to the UK Parliament.

The Inner House disagreed, holding that, when seen in its proper context, "the regulation of anti-competitive agreements is to be understood as applying to measures which will affect the anti-competitive regimes already in place across the UK, and previously the European Union; notably those which fall under the prohibition in section 2 of the Competition Act 1998" (para.37). In the Inner House's opinion, the reservation, "is not designed to prevent the Scottish Parliament from introducing measures which have as their object the rectification of inequalities in the relationship between landlord and tenant in particular leases. It is to stop the Parliament from legislating in a manner which will affect UK anti-competitive measures" (para.38).

It was accepted, the Inner House noted, "that tied pub leases were anti-competitive but that they were exempt from challenge on that ground. The 2021 Act does not alter that. Its purposes do not include preventing a landlord from entering into a tied pub lease with a tenant; nor do they terminate such leases. The introduction of a Code which will grant the tenant certain rights in relation to altering the lease into a market rent only one or to permit the sale of a guest beer are not per se anti-competitive measures; rather the opposite". (para.39).

Greene King's A1.P1 ECHR challenge also failed on appeal. The Inner House viewed it as a "root and branch" challenge which required Greene King to demonstrate that TIPSA could not be operated in a manner consistent with its A1.P1 rights in all or almost all cases. That was a hurdle which Greene King was far from overcoming.

It remains to be seen whether Greene King will seek to appeal to the UK Supreme Court.

Comment

The Inner House's opinion provides important legal reassurance to the Scottish Government as regards its ability to pursue policies (such as those implemented by TIPSA) which are designed to promote competition or deal with the adverse consequences of market distortions.

It would appear, in light of this judgment (and subject to any contrary view from the Supreme Court), that such measures ought to be regarded as falling within legislative competence provided that they do not attempt to duplicate or rival the UK's competition law regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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