Crehan v Inntrepreneur Pub Company (CPC) & Anor [2003] EWHC 1510 (Ch)

Case No CH 1998 C801[2003] EWHC 1510 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 26 June 2003
Before
THE HONOURABLE MR JUSTICE PARK
Between
BERNARD CREHANClaimantINNTREPRENEUR PUB COMPANY (CPC)DefendantsBREWMAN GROUP LIMITEDDefendant
David Vaughan QC, Mark Brealey QC and Mark Wonnacott (instructed by Charles Russell) for ClaimantKim Lewison QC, Nicholas Green QC, James Flynn and Martin Rodger (instructed by Sprecher Grier Halberstam) for DefendantsHearing Hearing dates : 10 February 2003 to 4 March 2003; 7 March 2003 to 24 March 2003
Approved JudgmentTABLE OF CONTENTSBegins at paragraph Abbreviations, glossary, dramatis personae, etc.1 Overview 2 Article 81; the Delimitis case 5 The evidence 9 The various strands of facts involved in this case 14 Factual strand 1: The general structure of the United Kingdom beer and pubs businesses from the mid 1980s onwards 16 Factual strand 2: The formation of Inntrepreneur and the evolution of its business over the years 30 Factual strand 3: Mr Crehan and his involvement with The Cock Inn and The Phoenix 58 Factual strand 4: Inntrepreneur’s contacts with the EC Commission 88 Factual strand 5: The stages through which Mr Crehan’s case has progressed 120 The Commission’s 1999 decisions in the cases of Whitbread, Bass, and Scottish & Newcastle.133 Factors on which Mr Crehan cannot rely to establish liability under his present claim 137 Is Inntrepreneur’s Delimitis argument an abuse of process?145 Delimitis condition 1 148 Delimitis condition 2 199 The Block Exemption 206 Other suggested Community law defences to Mr Crehan’s claim 223 Shared responsibility?224‘Mr Crehan was not an aspiring entrant to the market for supply of beer to on-trade outlets’226‘Mr Crehan would not have purchased from suppliers in other Member States even if he had been free of tie’228 Did the beer ties cause Mr Crehan’s failure at The Cock Inn and The Phoenix?230 Quantum 265 Were Mr Crehan and Mr Carroll in partnership?292 Conclusion 297 Abbreviations, glossary, dramatis personae, etc Annex at end
[1]Abbreviations, glossary, dramatis personae etc. These are contained in the Table in the Annex at the end of this judgment. I suggest that a reader who is unfamiliar with the detailed facts of the case should detach the Annex or make a copy of it, so that he or she can have it separately to hand while reading through the main body of the text. Overview[2]Mr Crehan is a publican. In July 1991, pursuant to agreements for leases, he took occupation of two pubs which Inntrepreneur owned: The Cock Inn and The Phoenix; they are situated close to each other in Staines, a town on the Thames a little to the west of London. The leases annexed to the agreements contained beer ties whereby Mr Crehan was bound to purchase most of his beer from Courage at the full prices in Courage’s price lists from time to time. Tenants or owners of free houses (as opposed to tied houses like The Cock Inn and The Phoenix) were able to purchase their supplies of beer, whether from Courage or from other suppliers, at prices which were discounted heavily below the listed prices which Mr Crehan was obliged to pay. Mr Crehan’s business failed and he became involved in protracted litigation with Courage and with Inntrepreneur. The case finally came to trial and was heard before me over a total of 29 days. It involves substantial issues of EC law revolving around whether the beer ties in Inntrepreneur leases infringed article 81 of the EC Treaty. It has already been to the CJEC. The effect of the CJEC’s decision, announced in September 2001 and reported at (among other places) [2002] QB 507, was that Mr Crehan might have a claim for damages against Inntrepreneur, but that there were substantial questions which needed to be decided by the national court.[3]The hearing before me took place in order to decide those questions. The case is very complicated, and it would be impossible to encapsulate all of the issues in a brief overview at the beginning of this judgment. However, in my view the two questions of overriding importance are as follows:(1) In 1991 (when Mr Crehan took his leases from Inntrepreneur) and in subsequent years was the structure of the beer distribution industry in this country such that the beer ties in Inntrepreneur leases infringed article 81?(2) If it was, was the failure of Mr Crehan’s business caused by the beer ties in his two leases, or was it caused by other factors altogether? For Mr Crehan to succeed, the answers to the first question has to be yes (i.e. the beer ties in Inntrepreneur leases did infringe article 81), and the answer to the second question has to be that the failure of his business was caused by the beer ties, rather than by something else. In my judgment the answer to the second question is in favour of Mr Crehan (i.e. it was the beer ties, and not other factors, which caused the failure of his business), but the answer to the first question is adverse to Mr Crehan (i.e. the beer ties in the Inntrepreneur leases did not infringe article 81). It follows that Mr Crehan’s claim for damages fails. What I say now will be no consolation to him, but he does not fail on any ground for which he could be said to have been personally responsible. He fails because of complex and difficult issues of EC law at a high level, and nothing that he did or failed to do in relation to The Cock Inn and The Phoenix influences those issues at all.[4]I should record that Mr Crehan was represented by Mr David Vaughan QC, Mr Mark Brealey QC, and Mr Mark Wonnacott. Mr Wonnacott was particularly concerned with the property aspects of the case. In the event they receded in importance as the case progressed, and a stage came when Mr Vaughan and Mr Brealey were responsible for the contentious parts of Mr Crehan’s case. Inntrepreneur was represented by Mr Kim Lewison QC, Mr Nicholas Green QC, Mr James Flynn and Mr Martin Rodger. Since the hearing Mr Lewison has become Mr Justice Lewison and Mr Flynn has become Mr James Flynn QC. Article 81; the Delimitis case[5]Article 81 is the first of the articles of the Treaty which deal with competition. The relevant parts of it read as follows. Article 81(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 … [five subaragraphs (a) to (e) follow which I will not reproduce here].(2) Any agreements or decisions prohibited by 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• [irrelevant in this case]• [also irrelevant in this case] 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:• impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives;• afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.[6]I will have to explain later how the article applies (or fails to apply) in the particular circumstances of this case, but at this point it is worth pointing out two features of it. First, the words of paragraphs (1) and (2) which are critically in point in the present case combine as follows:
‘all agreements between undertakings … which may affect trade between Member States and which have as their … effect the prevention, restriction or distortion of competition within the common market … shall be automatically void.’
[7]Second, paragraph (3) creates a power, vested in the Commission in the first instance, under which a particular agreement or category of agreements which would otherwise be invalidated by paragraphs (1) and (2) may be exempted from invalidation. There are two ways in which the power can be exercised. One is by the introduction of a ‘block exemption’, analogous to delegated legislation, whereby agreements which precisely comply with the terms of the block exemption are valid notwithstanding paragraphs (1) and (2). There was a block exemption capable of applying to beer ties, and whether it applied in this case is one of the issues which I have to decide. My decision is going to be that it did not. The other way in which the exempting power can be exercised is through the grant by the Commission of an individual exemption in a particular case. Part of the history of this case concerns unsuccessful attempts by Inntrepreneur and Courage to persuade the Commission to grant an individual exemption.[8]The leading case about article 81 and beer ties is the CJEC decision in Delimitisv Henninger Bräu AG, Case C-234/89, [1991] ECR I-935. Hereafter in this judgment I shall refer to the case simply as Delimitis. I shall have to examine a number of detailed aspects of it later, but it indicates that a beer tie in a lease of a pub may or may not be in contravention of article 81. Two critical questions have to be asked. First, having regard to the economic and legal context of the lease in question, is it difficult for competitors who could enter the market or increase their market shares to gain access to the national market for the distribution of beer in premises (like pubs but including some other kinds of on-licensed premises as well) for the sale and consumption of drinks? If it is not, the beer tie will not infringe article 81. If it is, the second question arises. That question (paraphrasing somewhat the words of the CJEC itself) is: where the difficulty in entering the market results from parallel networks of similar agreements (as will almost always be the case – or argued to be the case – in connection with beer ties), does the particular network to which the impugned lease belongs make a significant contribution to the sealing-off effect brought about by the totality of the agreements in their economic and legal context? If it does the tie will infringe article 81. If it does not the tie will not infringe article 81. I will refer to the two conditions which must exist before the article will invalidate a beer tie as Delimitis condition 1 and Delimitis condition 2. The evidence[9]I shall have to refer to many aspects of the evidence in some detail as this judgment progresses, but it might be useful for me to give a general indication of the nature of it at the outset. As one would expect, the evidence was documentary and oral; and the oral evidence was partly from witnesses of fact and partly from experts.[10]The documents came in many forms covering many different areas. However, most of them fell into three principal categories:(1) documents relating to The Cock Inn and The Phoenix, and in particular to Mr Crehan’s leases of them and his activities in connection with them;(2) documents involving the Commission, especially documents concerning the protracted exchanges between Inntrepreneur and the Commission over whether the Inntrepreneur leases were or were not in breach of article 81, and over whether they could be exempted from the article;(3) reports and other documents arising from the many investigations into aspects of the brewing and beer distribution industries which have been undertaken in this country over the last fifteen years or so.[11]There were 19 witnesses of fact called on behalf of Mr Crehan. He gave evidence himself, as did his wife and her brother, Mr Carroll. Mr Neal, the accountant who acted for him during the fairly short period when he was the lessee of the two pubs, gave evidence. There was evidence from several locals from the Staines area who were regular users of pubs. The purpose of their evidence was to show that the businesses at The Cock Inn and The Phoenix were seriously harmed by the low prices which competing pubs were able to charge and which Mr Crehan believed, rightly or wrongly, he could not afford to match. Several other witnesses were publicans who had been Inntrepreneur lessees of other pubs. Their evidence was intended to show that they had struggled to survive, not always successfully, while they were tied by their leases to buy their supplies from Courage at full list prices, but that when they (or those of them who survived) went free of tie (as many Inntrepreneur lessees eventually did), everything changed and struggling businesses became successful almost overnight. It seemed to me that after cross-examination the position had not been nearly so dramatic as the witness statements would have suggested, but I do accept that a lot of Inntrepreneur lessees found it hard to make a success of their businesses. Mr Crehan also adduced evidence from two former employees of Inntrepreneur, whose earlier backgrounds had been in the brewing industry rather than in the property business. The thrust of their evidence was that they thought that the terms of business which Inntrepreneur required its lessees to accept were too severe, and that many lessees did not have a fair chance of making a success of their pubs.[12]Inntrepreneur called 14 witnesses of fact. There was evidence from several past or present Inntrepreneur officers or employees, including the two persons who had been effectively the chief executives through most of the 1990s. The first was Mr Robert Williams and the second was Mr Michael Foster. Mr Foster was particularly interesting, because from 1989 to 1995 he was managing director of Courage and in 1995 he moved from Courage to become chief executive of Inntrepreneur, where he remained until 1999. So he experienced from two different viewpoints the activities of Inntrepreneur and of Courage, and the ways in which those activities impacted on the Inntrepreneur lessees. I think that a lot of Inntrepreneur lessees have been of the opinion that Inntrepreneur and Courage were somehow in league with each other to grind down the lessees. One of the things which I learned from Mr Williams and Mr Foster was that it was not like that at all, and that there was regular tension between the two companies. An important witness for Inntrepreneur was Mr Richard Fleck, a partner in the firm of solicitors (Herbert Smith) who acted for Inntrepreneur throughout its discussions and exchanges with the Commission. Inntrepreneur also called evidence from representatives of other brewing concerns designed to show that, as far as their breweries’ experiences went, it was not the case that it was difficult to enter the United Kingdom beer distribution market; or, if the brewery had already entered the market, it was not difficult to expand its business within it. One of these witnesses was Mr Dinesen, who had been the chief executive in the United Kingdom of the Danish brewing group, Carlsberg. Inntrepreneur also called evidence from two directors of companies which operated pubs in Staines which were close local competitors of The Cock Inn and The Phoenix. There were also some witnesses who dealt with the condition of the premises at The Cock Inn and The Phoenix when Mr Crehan left; but as the case proceeded those issues effectively fell away.[13]Turning to expert evidence, I received reports and heard evidence from no fewer than eight experts. Each side adduced evidence from expert valuers, expert accountants and expert economists. The valuers were Mr Day FRICS for Mr Crehan and Mr Butters FRICS for Inntrepreneur. The accountants were Mr Main FACCA for Mr Crehan and Mr Haberman FCA for Inntrepreneur. The economists were Dr Veljanovski for Mr Crehan and Professor Yarrow for Inntrepreneur. Professor Yarrow spoke to an expert report which had been prepared by himself and two other economists from an organisation known as NERA (National Economic Research Associates). The foregoing experts made six experts so far. In addition Inntrepreneur presented evidence from two other experts, Mr Spicer and Mr Willis FRICS. Mr Spicer is an investment analyst who has specialised in the brewing industry. Mr Willis is a surveyor whose firm has a particular specialisation in licensed premises. He gave general evidence about the brewing and licensed premises businesses in this country over the years from the late 1980s to the present day. The combined evidence of Mr Spicer and Mr Willis provided an interesting and illuminating account of many aspects of the beer business (distributing and marketing it as well as brewing it) over the years with which I am concerned. The various strands of facts involved in this case[14]In a judgment a judge always likes to be able to give a reasonably concise and chronological account of the facts. However, I am not going to attempt a chronological approach, because the case arises against several backgrounds of different levels of generality, ranging from high principles of EC competition policy to the beer drinking habits of pub-goers in Staines in the early 1990s. For me to give a single chronological account, switching backwards and forwards between strands, would be hopelessly confusing. Instead I will attempt to distil out the facts in five strands, as follows.• Factual strand 1: The general structure of the United Kingdom beer and pubs business from the mid-1980s onwards.• Factual strand 2: The formation of Inntrepreneur and the evolution of its business over the years.• Factual strand 3: Mr Crehan and his involvement with The Cock Inn and The Phoenix.• Factual strand 4: Inntrepreneur’s contacts with the EC Commission.• Factual strand 5: The stages through which Mr Crehan’s case has progressed.[15]In the immediately following parts of this judgment I will try to give sufficient of the facts to enable a reader to follow the subsequent parts of the judgment where I turn to the numerous disputed issues. However, there are many detailed nuances of the facts upon which I will have to expand from time to time as the judgment progresses. Factual strand 1: The general structure of the United Kingdom beer and pubs businesses from the mid-1980s onwards.[16]In the mid-1980s there were many companies in the United Kingdom which brewed beer, but five large companies or groups, sometimes called national breweries, had between them a large share of the national market: Bass, Allied-Lyons, Grand-Metropolitan, Courage, and Whitbread. Some observers of the market would have regarded Scottish & Newcastle as a sixth national brewery.[17]As I have just said, one of the large national breweries was Courage. In 1985 the Courage group was acquired by the Australian group Elders. The Elders group owned the well-known Australian lager brand, Fosters. Indeed I believe that in time the Australian owner of Courage came to be called Fosters Brewing Group, not Elders. I do not know whether this reflected a change of owner within a wider group or only a change of name of the continuing owner. At all events Courage started to brew Fosters, so that Courage’s principal products were, so far as ale was concerned, the established Courage bitters (Directors and Best) and, so far as lager was concerned, Fosters. Courage also had licence agreements under which it brewed some other established lager brands.[18]An important feature of the businesses of the large brewing groups was that they owned a great many pubs. Some of their pubs were managed houses: that is to say the publican who held the licence and who ran the pub was an employee of the brewery, so that it was the brewery which sold the beer across the bar to customers. Others of their pubs were tenanted: the brewery let the pubs to publicans, so that it was the publican-tenants who sold the beer across the bar. The tenancy agreements almost invariably contained beer ties which obliged the tenants to buy all or most of their beer from the brewery which owned the pub. Both managed houses and tenanted houses were examples of ‘vertical integration’: the producer of the commodity – the beer – also owned or controlled many of the outlets through which it was sold to members of the public.[19]Tenancy agreements of pubs at this time were different in several respects from tenancy agreements or leases of other types of commercial premises like shops or offices. Pub tenancies were for quite short terms, such as three or five years, but the general pattern was that they were renewed as the current terms expired. They were not assignable by the tenants, and in general the tenants were severely restricted in what they could do by way of repair, refurbishment and improvement of the pubs.[20]For brewers to own managed houses and operate them themselves, and also to own tenanted houses with beer ties in the tenancy agreements, were two ways in which the brewers had a substantial degree of control over the retail outlets for the beer which they produced. Another common arrangement which led to a similar result was a loan tie. A brewery would make a loan to the proprietor of a free house or to a club, and a term of the loan agreement would tie the borrower to purchase some proportion of his or its beer supplies from the brewery.[21]A feature of the industry in the 1980s – of a different nature, but one which should be mentioned – is that the proportion of beer sales accounted for by lager (as opposed to ale – a peculiarly British product) was steadily increasing. Some lagers were imported, but it is quite expensive and cumbersome to import a bulky and heavy product like beer, so many United Kingdom breweries installed lager production facilities. With the exception of Tennents lager, attempts to establish and launch home-grown lagers have been unsuccessful. The best known example of this is Harp, a lager introduced by a syndicate headed by Guinness and marketed for a number of years. I am not sure exactly when Harp went out of production, but I think that it is no longer produced. By the mid-1980s many United Kingdom breweries were brewing well-known international brands of lager, usually under licence from foreign proprietors of the brand. However, there were other patterns. One example is that Bass purchased the United Kingdom rights to the Carling brand, which in time became the largest selling beer in the country. Another is that the Danish group Carlsberg had built its own brewery at Northampton in the early 1970s. I shall have more to say about Carlsberg from time to time in later parts of this judgment.[22]In August 1986 the Monopolies and Mergers Commission (the MMC) was instructed by the Director General of Fair Trading to investigate and report upon ‘the existence or the possible existence of a monopoly situation in relation to the supply of beer within the United Kingdom for retail sale on licensed premises.’ The MMC produced its formidable report in February 1989. One of its findings was that ‘a complex monopoly situation exists in favour of the brewers with tied estates and loan ties.’ It made detailed recommendations, relating in particular to ties in tenancies of pubs and to loan ties. The Government did not implement the recommendations in every detail, but it did make changes which have had a fundamental impact on the structure of the industry.[23]The changes came predominantly in the form of two statutory instruments made in December 1989. They are generally referred to as the Beer Orders. Their formal titles are the Supply of Beer (Tied Estate) Order 1989 and the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989. As the annexed Table states, I will refer to them as the TEO and the LTO. They were made by the Secretary of State for Trade and Industry under powers conferred by the Fair Trading Act 1973.[24]The TEO did not have significant effects on smaller breweries, that is breweries (or brewery groups) which owned fewer than 2,000 licensed premises, but it had major effects on the large national breweries (or brewery groups). The most important effect was that the large breweries were required substantially to reduce the number of outlets comprised in their managed and tied estates. They had to do this by 1 November 1992, which left quite a short lead-in time before the breweries had to comply. The MMC had recommended a simple limit of 2,000 for each national brewer, but the TEO softened this by making the limit 2,000 plus one half of the excess over 2,000 of the total outlets (principally pubs) owned by each large brewery group since July 1989. This meant that not later than 31 October 1992 the large brewers either had to sell a significant number of pubs, or release a significant number from tie, or implement a combination of the two. The evidence was that the TEO, coupled with the Undertakings (which applied to Inntrepreneur, and which I will describe later: see paragraph 36 below) , meant that something like 11,000 pubs were going to go free of tie or be sold before November 1992.[25]Another important effect of the TEO (for the large breweries to which it applied) was to restrict to some extent the permitted scope of beer ties in pub leases. All tied tenants had to be permitted to purchase one cask-conditioned ale from a supplier of their own choice, untrammelled by any tying provision in their leases. They were also to be permitted to purchase non-alcohol or low alcohol beers and ciders free of tie. So far as a cask-conditioned ale was concerned this provision of the TEO has customarily been referred to as the ‘guest ale’ provision. I will say more about it later, but there are two points which I can conveniently make now. First, it did not apply to lagers, which (as I have explained) were becoming the largest selling beers in pubs: tied tenants had to buy their supplies of lagers within the tie. Second, despite the implications of the word ‘guest’, a tied tenant could purchase his guest ale from the tying landlord (or, as matters developed in the case of Inntrepreneur, from Inntrepreneur’s nominated supplier under the beer tie in its pub leases, Courage). An important point was that, on a tenant’s purchases of his guest ale, he was not required to pay for it at the brewery’s list prices: he could negotiate for and obtain the sort of substantial discounts below list prices which tenants or owners of free houses habitually obtained on all of their beer supplies. This applied whether he chose to buy his guest ale from a brewer other than his landlord, or from the landlord (including, in the case of an Inntrepreneur tenant like Mr Crehan, from Inntrepreneur’s nominated supplier, Courage). Mr Crehan chose to buy his guest ale from Courage.[26]Moving from the TEO to the LTO, whereas the main provision of the TEO (the requirement substantially to reduce the number of tied houses in the estates of the larger breweries) was not to take effect until November 1992, the LTO took effect almost immediately. It did not prohibit loan ties absolutely (which is what the MMC had recommended), but it provided that all agreements for loans by breweries or members of brewery groups which prohibited the borrower from purchasing beer from third parties had to be terminable by the borrower on not more than three months’ notice. So brewery loans with ties were still permissible, but the borrowers could always pay them off at short notice and thereby be freed from the ties. The LTO applied to all breweries or brewery groups, not just to the larger ones with estates of over 2,000 licensed premises.[27]The consequences of the Beer Orders are of great importance in this case, particularly given that Mr Crehan took the leases of The Cock Inn and The Phoenix about eighteen months after the Orders were made. In the words of Mr Spicer, an expert witness on the financial structure of the beer industry:
‘The years in which Mr Crehan operated his public houses, 1991 to 1993, were ones of considerable change and turmoil within the UK brewing industry.’
Mr Spicer did not attribute the change and turmoil exclusively to the Beer Orders, but it is clear from his report that the Orders had a lot to do with it. In the words of Mr Willis, the expert chartered surveyor with intimate personal knowledge of the industry, the Beer Orders resulted in ‘fundamental changes to the industry’. From time to time as this judgment progresses I will refer to various effects of the Orders (and also to some extent to effects of other influences on the industry at the same period), but it may be helpful to highlight some salient points here. • An unprecedented number of pubs were available for purchase, as the larger brewers reduced their tied and managed estates in order to comply with the ceilings set by the TEO. • Regional and local brewers (brewers which were substantial in size but not large enough to be within the TEO) expanded by purchasing many of the pubs which came on the market. • A new type of company emerged, generically referred to as a Pubco. A Pubco owns a substantial number of pubs but does not have any brewing activities, and is not a member of a brewing group. Some Pubcos manage some or all of the pubs which they own, so they trade as substantial retailers of beer in their own pubs. Others own the pubs but lease them to tenants, usually by leases which have ties in them requiring the publican lessees to buy a large part of their beer supplies from the Pubco or another vendor nominated by the Pubco. Before the Beer Orders Pubcos hardly existed at all. By now they own between them a substantial proportion of pubs. One expert report estimated that in 1998 they owned something like 15% of the pubs in the country. Given the size of the United Kingdom market, that is a lot of pubs. Some Pubcos are large enterprises, taken entirely by themselves. Mr Willis records that by the year 2000 Punch Taverns and Enterprise Inns each owned several thousand outlets, and that Pubmaster owned over 2,000. He gives details of other Pubcos which have estates approaching the same size. There is no doubt that Pubcos, both individually and collectively, possess considerable economic power and are in no sense dominated by the might of the large breweries. • Beer supply agreements have become important. These are agreements between breweries and owners of pubs, including Pubcos. They provide for a brewery to supply to the other party some part of its beer requirements for a period which varies from agreement to agreement. I shall have more to say about beer supply agreements at later stages in this judgment. • Several breweries have been closed. This may not have been a result of the Beer Orders, but rather of other forces which were active in the 1990s, including the prolonged and deep recession in the early years of the decade. • There has been much activity in acquisitions, mergers, and takeovers. It would be beyond the scope of this judgment to give any sort of detailed account of all of the changes, but the overall picture of the brewing industry in this country now is quite different from how it appeared in the 1980s. The largest brewing group in the country now is Scottish & Newcastle (sixth in size at the time of the MMC report), which has acquired several previously separate brewing operations. One of them was the Courage brewing business. The next three largest brewing groups are owned by Interbrew (a Belgian group), Coors (a United States group), and Carlsberg (a Danish group). • The old structure whereby the breweries, particularly the larger breweries, owned a large proportion of the pubs around the country has changed significantly. It has not disappeared entirely. I think I am right that Scottish & Newcastle still owns a tied and managed estate of pubs, and so do many regional and local breweries. But Interbrew and Coors do not own their own estates of pubs, or at least do not own large estates of pubs: they supply beers brewed by them (or by companies in their groups) to Pubcos, free houses and others.[28]As well as developments in the brewing and pubs businesses in this country which can be seen to have been related to the Beer Orders, there were other developments which should be noted. Total consumption of beer, at least in on-licence outlets, declined, but lager continued to flourish and to expand its share of the market. Mr Spicer gives the following striking percentages for lager’s share of total beer sales in the United Kingdom: 1960, 1%; 1970, 7%; 1980, 31%; 1990, 51%; 2000, 64%. The percentage of beer sales through off-licences increased: 1979, 12%; 1991, 21%; 1993, 23.2%.[29]It is also relevant to keep in mind that the early 1990s exhibited a deep and prolonged recession, which lasted for most of 1991 and 1992, and only started to abate in 1993. It was a period when ‘negative equity’ became a familiar expression. In businesses generally, not restricted to brewing and pubs, there were many failures. For consumers, money for recreational spending was not as readily available as it had been in more normal times. Factual strand 2: The formation of Inntrepreneur and the evolution of its business over the years[30]The Inntrepreneur group of companies was established in 1991, but the genesis of its business traces back to innovations within the Grand Met group a few years earlier. In the mid and late 1980s the Grand Met group owned a number of brewing interests, several of which were famous names in the industry: for example Watneys, Trumans, Ushers, The Norwich Brewery, Manns, Wilsons, Websters. The various Grand Met breweries owned estates of managed and tied houses. The tied houses were let to tenants on the sorts of tenancies which were traditional in the industry, and which I have briefly described in paragraphs 18 and 19 above. In 1986 Mr Robert Williams (who was a witness for Inntrepreneur in the case) became the Chief Executive of Grand Metropolitan Estates Ltd (GME), the group company to which the equitable ownership of the tied and managed houses of the group had been transferred. He came originally from a property background rather than from a brewing background. He explains in his witness statement that from the time when he joined the licensed trade in 1981 he believed that there had to be a better way for the industry to manage its property assets and that it must be possible to create an institutional market for investment in public houses.[31]Mr Williams was instrumental in devising a new form of lease of a pub, a form which came to be described as an ‘Inntrepreneur lease’. Instead of being for a quite short term, with a de facto expectation of renewal from time to time, an Inntrepreneur lease was for twenty years. There were rent reviews at five yearly intervals. The tenant was responsible for repairs – a financial burden in one sense, but an advantage in another in that the tenant had much greater freedom to do things affecting the state and appearance of his pub. The leases were in principle assignable, whereas the traditional types of pub tenancies were not. The rents would be higher than under the old types of tenancies. The theory was that the higher rents reflected the advantages which Inntrepreneur leases possessed. One characteristic of the old-style pub tenancies which carried over into the new Inntrepreneur leases was that they contained beer ties, requiring the publican lessee to buy his supplies of beer from the lessor or such other supplier as the lessor might nominate. Although, as I have just said, rents for Inntrepreneur leases would be higher than for the old style of tenancies, it was to be expected that rents for tied Inntrepreneur leases would still be lower than rents for free of tie premises leased on otherwise comparable terms. I have already mentioned that free house publicans could obtain discounts on their purchases of beers, whereas tied lessee publicans (like tied Inntrepreneur lessees) could not. This disadvantage of tied leases by comparison with free of tie leases ought in principle to have been reflected to some extent in tied leases commanding lower rents.[32]The beer ties are of course central to the issues in this case, and at a later point I will say more about the detailed contents of the ties in the leases of The Cock Inn and The Phoenix. See paragraph 73 below.[33]The concept of the Inntrepreneur lease attracted a lot of interest, and many publicans were keen to acquire them. The first Inntrepreneur leases were granted by GME in 1986. I am not sure whether at that time there was a separate company which incorporated ‘Inntrepreneur’ in its name, or whether ‘Inntrepreneur’ was simply a name which GME used for its new style leases.[34]The creation of the present Inntrepreneur companies derived from something which has been referred to as the ‘pubs for breweries swap’. This was a major business deal between the Grand Met group and Courage (which was by then owned by the Australian group Elders/Fosters). Negotiations about it started in 1988 or 1989, and I believe that it was formally implemented on 28 March 1991. Some time was occupied in securing approvals from the Commission and from the OFT. These approvals were obtained, but a condition of approval from the OFT was that Inntrepreneur’s shareholders gave important undertakings (generally referred to as the Undertakings, with a capital U) to the United Kingdom government. I shall say more about the Undertakings later (see paragraph 36 below). The general shape of the pubs for breweries swap was as follows. ◦ The Grand Met group transferred its breweries and brewing interests to Courage. This included not just the physical breweries, but also the rights to brand names, licences to brew foreign brands, etc. ◦ Thus Grand Met withdrew from brewing. ◦ Grand Met and Courage created a 50/50 owned sub-group of companies, called Inntrepreneur, to own the tied estates formerly owned by GME and by Courage. If I have understood correctly, the Inntrepreneur sub-group consisted of a holding company and three operating subsidiaries. The holding company was owned in 50/50 proportions by Grand Met and Courage (which was itself ultimately owned by Elders/Fosters of Australia). The three subsidiaries were wholly owned by the holding company. I may not have it exactly right, but I assume that the concept was for the holding company to own the shares in the subsidiaries, and for the subsidiaries to own the pubs. I add that companies in the Inntrepreneur group have changed their names on some occasions, which makes it hard to follow exactly which company is which as time passes. Fortunately nothing turns on it in the present case, and I can and will use the single word Inntrepreneur to apply collectively to all companies in the Inntrepreneur sub-group. The Inntrepreneur company which is the first defendant to Mr Crehan’s claim is now called Inntrepreneur Pubco (CPC). I infer that the letters CPC derive from an earlier time in its history when it was called Courage Pub Company Ltd. ◦ The pubs in the tied estates of GME and of Courage were transferred to Inntrepreneur. Some pubs in the managed estates were also transferred, but for the most part those pubs were transferred with a view to their ceasing to be managed houses and becoming leased pubs in the future. The basic idea was that Inntrepreneur was to be a freehold lessor of pubs let to tenants on Inntrepreneur leases; it was not to be an operator of managed pubs. If I have understood correctly both the Grand Met group and Courage retained managed estates in their own ownerships. All or many of the pubs in the Grand Met managed estate traded under the name Chef and Brewer. ◦ There was a management agreement between Inntrepreneur and GME for GME to manage the estate of pubs owned by Inntrepreneur. Inntrepreneur had a board of directors, which was composed of Grand Met and Courage persons in equal proportions, but the running of Inntrepreneur’s business was undertaken by GME under the management agreement. I have mentioned earlier that Mr Williams was the Chairman and Managing Director of GME. As such he was effectively the chief executive of Inntrepreneur. ◦ The objective was that Inntrepreneur should negotiate with a view to letting all the pubs owned by it on Inntrepreneur leases. By and large this was achieved. ◦ The leases all contained beer ties. They required the lessees to purchase their supplies of beer (except for one cask-conditioned guest ale, non-alcohol beers and low-alcohol beers) from a supplier to be nominated by Inntrepreneur, paying the full list prices of the nominated supplier. I go into more detail about the contents of the beer tie provisions in the leases of The Cock Inn and The Phoenix in paragraph 73 below. ◦ Inntrepreneur nominated Courage as the supplier. There was a ‘Beer Procurement Agreement’ which provided for this. Courage was to make available ‘a wide range of high quality beer in line with consumer demand … and in a competitive manner’. Its prices were to be generally competitive with the prices charged for similar beer to tied tenants of brewers other than Courage. The Beer Procurement Agreement also provided for Courage to make payments, in the nature of commissions, to Inntrepreneur calculated by reference to the prices received by Courage upon tied sales of beers to Inntrepreneur tenants. ◦ Although it was not strictly part of the pubs for breweries swap, but rather something which was a permanent feature of the subsequent operation of the structure, it is convenient to mention here an aspect of how the beer ties in Inntrepreneur leases operated. This was the Courage price list. Courage had price lists in force from time to time (and different lists for different parts of the country) in which it listed the various beer and other products which it offered for sale to Inntrepreneur lessees, and from which the lessees had to buy their beer supplies (except for the guest ale, non-alcohol beers and low alcohol beers). It is worth noting that the Courage price lists were extensive. Naturally they contained all the range of ales and lagers, draught or bottled, brewed by Courage or associated companies, but they also contained a significant number of beers brewed by other suppliers. For those beers Courage acted in effect as a wholesaler. They included Guinness, and also a range of ales or lagers produced by smaller breweries. I do not think that the Courage price lists included beers produced by the other national breweries (e.g. Bass, Allied Lyons or Whitbread), but they did include various beers which were produced by regional breweries and which had attracted high reputations.[35]I will describe the history of operation of the beer ties in Inntrepreneur leases from the inception of the company until the present time. Then I will go back in time again to Inntrepreneur’s early period and discuss some other aspects of the company’s existence and activities.[36]It will be recalled that the TEO required the large breweries substantially to reduce by 1 November 1992 the number of tied and managed pubs which they owned. Inntrepreneur became the owner of the tied estates of two large brewery groups, Grand Met and Courage. Nevertheless the TEO did not apply to Inntrepreneur, because Inntrepreneur was not itself a brewing company or a member of a brewing group: it was a property company, and although one of its 50% shareholders (Elders/Fosters) had substantial brewing interests including in particular Courage, Grand Met, the other 50% owner, was withdrawing from brewing pursuant to the pubs for breweries swap. However, as a condition of the OFT consenting to the pubs for breweries swap, Inntrepreneur’s shareholders were required to give ‘the Undertakings’ to the Secretary of State for Trade and Industry. The Undertakings imposed on Inntrepreneur (through its shareholders) similar obligations to those which the TEO would have imposed. Indeed in some respects the Undertakings imposed more onerous obligations. The Undertakings restricted to 4,350 the number of Inntrepreneur pubs which could be let on tied leases after 31 October 1992. (In March 1991, after completion of the pubs for breweries swap, Inntrepreneur owned about 8,450 pubs.) Thus until 31 October 1992 Inntrepreneur was in the same position as the other large breweries: it was going to have to dispose of some pubs, or release some pubs from tie, or a combination of the two. In fact it did sell quite a lot of pubs, and on 31 October 1992 it also released from tie 2,098 pubs. (The Phoenix, one of Mr Crehan’s pubs, was one of them.) It still owned those 2,098 pubs, which were now free of tie, and in addition it still owned 4,331 pubs which continued to be tied. Looking further into the future, the Undertakings went further than the TEO, because they required Inntrepreneur on 28 March 1998 to release all of its pubs from tie. There was nothing similar in the TEO, although the Government had announced that after a few years it would review the Beer Orders, and (at least according to the impression which I have formed) many observers expected that the review would result in the Orders being extended so at to prevent the large brewers having any tied pubs from 1998 onwards. In the event, as I will describe, that did not happen.[37]In the foregoing circumstances Inntrepreneur’s position was that until 31 October 1992 all of its pubs could be let on tied leases; after that date a maximum of 4,350 of its pubs could carry on being let under tied leases until 28 March 1998. In the mid 1990s it appeared that by 28 March 1998 none of Inntrepreneur’s pubs could continue to be let on tied leases, so that Inntrepreneur would either have to sell pubs or release the lessees from the ties. However, the matter did not turn out that way in the event.[38]The Undertakings, unlike the TEO, were not part of the general law which conferred rights on lessees of pubs. Their contents were generally known, but as a matter of law they operated solely between the Secretary of State and the companies which controlled Inntrepreneur. Notwithstanding the existence of the Undertakings Inntrepreneur (entirely legitimately) continued to include in its leases beer ties which required the publican lessees to buy all their supplies of beer (except one guest cask-conditioned ale, non-alcohol beers, and low alcohol beers) from Inntrepreneur’s nominated supplier, which in practice was Courage. The beer tie provisions in the leases were not expressed to expire on 31 October 1992 or 28 March 1998, but rather continued through the full 20 years terms of the leases. Inntrepreneur and its shareholders anticipated that they would comply with the Undertakings by selling pubs or releasing pubs from the ties during the continuance of the current leases. That is exactly what Inntrepreneur did before 1 November 1992 in relation to a lot of its pubs, and the expectation was that it would do it again before 29 March 1998 in relation to the tied pubs which it still owned. The leases contained provisions for the lessees to be released from the beer tie, in which event Inntrepreneur had the option to require an immediate rent review. The theory behind this was that market rents for a tied house were lower than for a free house, so if Inntrepreneur released a pub from tie it would be likely to want to have the rent increased.[39]However, before 28 March 1998 (when the Undertakings required all Inntrepreneur pubs to be released from tie) there was a change. The Government had announced that it was not going to review the Beer Orders after all, so that it was apparent that the other owners of large tied estates (being at the time the other large brewers like Bass, Allied Lyons and Whitbread) were going to be able to continue to enforce the ties in their leases indefinitely. Inntrepreneur and Courage lobbied the Government to the effect that that would place them at considerable commercial disadvantages, and in February 1997 the Government agreed to release Inntrepreneur and its shareholders from the Undertakings. So after 28 March 1998 the ties continued to bind those Inntrepreneur tenants who had not been released from tie in 1992. In practice Inntrepreneur did in fact release a number of tied lessees from the ties on 28 March 1998, but a lot of pubs continued to be tied after that date and (I believe) are mostly still tied today. However, as I will explain later, there have been a number of changes in the way that the tie is operated, and, although this was not gone into in any depth in the hearing of the present case, my impression is that the tied tenants now have fewer complaints about the tie than many tenants had (or believed that they had) ten or a dozen years ago.[40]I mention for completeness that the events whereby for a time Inntrepreneur was informing its tenants that, because of the Undertakings, the ties would come to an end in 1998, but later Inntrepreneur sought to continue to enforce the ties because it had been released from the Undertakings, have themselves given rise to quite a lot of litigation between Inntrepreneur and tenants. The most recent case is probably a decision of mine in Inntrepreneur Pub Company (CPC) v Sweeney [2002] EWHC 1060 (Ch), in which the judgment was delivered on 27 May 2002.[41]To summarise the history of the Inntrepreneur beer ties during the 1990s, the number of Inntrepreneur pubs which were tied fell sharply on 31 October 1992 because of the TEO. It had appeared likely that all remaining Inntrepreneur pubs would go free of tie on 28 March 1998 because of the Undertakings, but in the event that did not happen because the Government released Inntrepreneur from the Undertakings. Inntrepreneur did in practice release some pubs from tie in 1998, but a lot of the ties continued in force after that date.[42]I will now go back in time to the early period of Inntrepreneur’s existence. When Inntrepreneur leases were introduced (which first happened within the Grand Met group, before the formation of the Inntrepreneur group) there was a lot of demand for them, and when Inntrepreneur started its business it substantially succeeded in its objective of having its entire estate let on Inntrepreneur leases. However, quite early in Inntrepreneur’s existence things started to go wrong. I am sure that many lessees were well content with the Inntrepreneur leases which they obtained, and indeed there was evidence to that effect. But there is no doubt that an unexpectedly high number of Inntrepreneur lessees had the opposite experience, and soon found themselves in major financial difficulties. As I shall explain more fully later, Mr Crehan was typical of many lessees in this respect. Disaffected Inntrepreneur lessees sought and obtained publicity for their grievances, actual or perceived. Inntrepreneur attracted a lot of adverse publicity, including critical articles in the Press. On one occasion an early day motion attacking Inntrepreneur was tabled in the House of Commons, and was signed by over 100 Members of Parliament.[43]By 1993 or 1994 Inntrepreneur was becoming embroiled in litigation of various kinds with a lot of dissatisfied past or present tenants. Organisations of tenants who were hostile to Inntrepreneur and were having or had had problems in complying with the obligations under their leases started to develop. One was called NAIL (National Association of Inntrepreneur Lessees), the moving spirit of which seems to have been a lady called Mrs Boyes, who was the defendant in one of the early Inntrepreneur cases: Inntrepreneur Estates (GL) Ltd v Boyes [1993] 2 EGLR 112. One of the witnesses for Mr Crehan in the hearing before me was Mr Martin Shepherd. He was an Inntrepreneur lessee whose business failed. After he had had to surrender his lease (which was in 1993) he for some years ran a company known as Group Action Ltd, whose main activity was to assist lessees in their disputes with Inntrepreneur. He was in my opinion a restrained and moderate witness, and not at all the unbalanced hothead whom some of the Inntrepreneur parties seem to have expected him to be. He said that he had been contacted by ‘hundreds, if not thousands’, of Inntrepreneur tenants who were in financial trouble, and who needed some sort of central coordinator such as, to an extent, he became.[44]I do not know what caused things to go so wrong for Inntrepreneur in these respects. Notwithstanding the beliefs of some of the most disaffected tenants, I do not accept the thesis that Inntrepreneur set out to impose harsh terms on the tenants and did not care when large numbers of them failed. Mr Williams (who, via GME, was the effective chief executive of Inntrepreneur in its earlier years) said that it was unwise to overrent properties, and that the policy of Inntrepreneur was not to exact rents from tenants at levels which the tenants would predictably be unable to afford. I accept that the general policy of the top management of Inntrepreneur was to set affordable rents, that the large number of business failures which Inntrepreneur tenants suffered was not what the top management had wanted or expected, and that the failures and adverse publicity were a major concern for the company. I do not go along with the belief of many tenants that Inntrepreneur did not care about the failure level among its tenants.[45]All the same, it seems clear that Inntrepreneur did not get things right in its early years. The rents were always a good deal higher than the rents which the former landlords (like Courage) had charged to publican tenants who held premises on old style pub tenancies. In addition – a very important point, especially in the present case – the beer tie provisions in the leases bound the lessees to purchase most of their beer supplies from Courage at the full prices in Courage’s price lists. Owners or lessees of pubs which were not subject to ties could buy their beers at discounted prices, and in the early 1990s discounts were large: sometimes £80 or more a barrel. (A barrel is 288 pints.) The general pattern was that, the greater the volume of purchases which an untied publican made, the greater was the rate of discount per barrel which he could negotiate with a supplying brewery. The discounts could mean that an untied publican could buy supplies of beer at between 25p and 30p a pint cheaper than an Inntrepreneur tenant, and could attract more customers by passing on the discounts in whole or in part in the form of lower retail prices across the bar. It is apparent that, in so far as competitiveness with other pubs was affected by the prices customers paid for their beer, Inntrepreneur tenants were not in a strong position.[46]As a complaint made to the Commission put it, Inntrepreneur tenants found themselves squeezed between the high rents under their leases and the high prices which they had to pay to Courage for most of their beer supplies. That was by no means the only factor which influenced the high number of failures of Inntrepreneur lessees – the recession, for example, must also have had an impact – but the financial ‘squeeze’ must surely have played a part in many of the failures. At least one important Inntrepreneur witness very fairly accepted this or something similar to it. Mr Foster thought that it was ‘an unfortunate distortion’ that there could be two tenants in one street, one of them tied and one of them free of tie. He ‘absolutely’ would not disagree with the evidence given by several tenants who had been tied but then became free of tie that ‘the whole world changed for them’. A witness for Mr Crehan, Mr Cahillane, had in the past been a senior employee of Courage. He had occasionally sat on Inntrepreneur rent panels, which played a significant role in the processes by which rents for individual pubs were set. He said that it was obvious to him that, where a tenant took a lease at the ‘market rent’ (his quotation marks) set by the rent panel and was then obliged to pay non-market beer prices, he would struggle to survive. One of the major reasons why Mr Cahillane left Courage when he did was that he ‘did not feel that the Inntrepreneur tenants had a chance’. Another witness for Mr Crehan was Mr Lumsden, who had a brewing background mainly with Watneys, and who, like Mr Cahillane, had sat on rent panels. He gave similar evidence.[47]I think that Mr Cahillane may have exaggerated, as also did some of the Inntrepreneur tenants whose profit and loss accounts indicated that things had not been as bad for them when they were tied tenants as their witness statements suggested. All the same, I do think that there was a financial squeeze on Inntrepreneur tenants, and, despite the best intentions of Mr Williams and the top Inntrepreneur management, Inntrepreneur and Courage did not get things right in the early years. That is demonstrated by the volume of Inntrepreneur litigation which there has been over the years, far exceeding in magnitude the litigation between non-Inntrepreneur tenants and their pub lessors. Other pub lessors with large tied estates (like Bass, Whitbread and Scottish & Newcastle) soon followed Inntrepreneur in granting 20 years leases on terms similar to those in Inntrepreneur leases. There have been disputes between them and some of their lessees, but nothing on the scale of the disputes between Inntrepreneur and a significant number of its lessees.[48]It is difficult to generalise about the nature of the litigation involving Inntrepreneur lessees. Some cases arose when lessees fell into arrears on their rents, and Inntrepreneur sued for the arrears or sought to enforce forfeiture. Other cases were brought by Courage for unpaid invoices on supplies of beer. That is how the litigation involving Mr Crehan first began. An important trend which developed quite early was the recourse by tenants to what Inntrepreneur and its advisers came to call ‘the Euro defence’. Many tenants and their advisers started to advance the argument that the beer ties in the leases were contrary to article 81 (numbered article 85 at the time). The Euro defence also featured prominently in cases where tenants said that they could not survive if they had to pay Courage’s list prices, so they stopped buying from Courage and started buying ‘out of tie’ from other suppliers. On the face of it they were acting in breach of the terms of their leases, but they argued that the beer tie provisions in the leases were contrary to article 81 and therefore void.[49]All of this was becoming a big problem for Inntrepreneur, for all that Inntrepreneur was generally winning the cases which were fought out in court in this country. In those circumstances Inntrepreneur, advised by, among others, its solicitors Herbert Smith (usually represented by the partner Mr Fleck) decided that it should itself approach the Commission, with a view to obtaining support from the Commission for its contentions that there was nothing in the beer tie provisions which infringed article 81 and that the ‘Euro defence’ had no merits. Inntrepreneur’s main contacts with the Commission began in 1992. I will describe them in some detail under the later sub-heading for ‘Factual strand 4’. I record now that Inntrepreneur was in contact with the Commission for something like five years, but achieved nothing so far as concerned the leases and operation of the beer ties in its early years, including in particular the years when Mr Crehan was the lessee of The Cock Inn and The Phoenix. In 1998 Inntrepreneur did secure confirmations from the Commission which were acceptable to it, but they related to new ways of operating the beer ties which were not in operation at the times with which this case is specifically concerned.[50]Having mentioned Inntrepreneur’s approach to the Commission and having said that I will deal with it more fully under a later sub-heading, I return to Inntrepreneur’s activities in this country. One feature of the company in the first part of the 1990s was that tensions started to develop between its two shareholders. Grand Met no longer had any brewing interests in its group, and its interest in Inntrepreneur was as a shareholder in a property investment company. Further, day to day management of Inntrepreneur was in the hands of the Grand Met group via the management agreement between Inntrepreneur and GME. Courage was a brewer, and had a particular interest in wanting to achieve substantial volumes of sales of its beer products through the pubs in the Inntrepreneur estate. Mr Williams said in his witness statement:
"… there were some tensions between Grand Met and Courage as the two companies had different aims and objectives which were potentially conflicting. Courage was interested mainly in its revenue from beer sales and Inntrepreneur was concerned to protect the investment value of its properties."
A particular manifestation of this arose from the practice which started to develop of some lessees ignoring the beer tie in their leases and buying their supplies out of tie from suppliers other than Courage. The lessees’ covenants to buy within the ties had been given to Inntrepreneur, not to Courage, but Inntrepreneur, managed by GME, was reluctant to take any sort of decisive action to enforce them. For example, towards the end of Mr Crehan’s tenancy of The Phoenix there was a time when he was buying his beers out of tie. Inntrepreneur did nothing about it.[51]Much of the strategic thinking for Inntrepreneur had assumed that the Beer Orders were a first stage, and that a second stage would entail the entire prohibition of beer ties, at least on the part of the larger brewers. Grand Met and Courage had broken ranks with the other larger brewers by giving evidence to the MMC in the 1980s that they believed that beer ties should be phased out. They gave similar evidence in March 1993 to the Agricultural Committee of the House of Commons, which was conducting hearings by way of review of the Beer Orders. However, at about that time the Secretary of State for Trade and Industry cancelled the previously scheduled review of the Beer Orders, and it became apparent that there was not going to be further legislation prohibiting beer ties altogether. Inntrepreneur began to perceive itself to be seriously exposed, because, by the Undertakings, it was bound to the Government to release all of its tied pubs by 28 March 1998. It now appeared that the other large breweries were not going to have to do the same thing.[52]Anxieties of this sort seem to have been affecting the market value of Inntrepreneur’s portfolio of pubs, and may have coincided more or less with the change from Mr Williams to Mr Foster as chief executive of Inntrepreneur. Mr Williams formally left Inntrepreneur and GME in April 1995, but he was not heavily involved in Inntrepreneur’s affairs from the latter part of 1994. Mr Foster became the sole chief executive in June 1995. There had been a transitional period during which Mr Foster (at the time a director of Courage) and a senior officer within the Grand Met group were joint managing directors of Inntrepreneur. When Mr Foster became the full time chief executive of Inntrepreneur in mid-1995 he resigned from his positions at Courage. In about November 1996 the agreement whereby Inntrepreneur’s business was managed by GME had been terminated, and management was brought in-house within Inntrepreneur itself.[53]Mr Foster was specifically charged by the shareholders of Inntrepreneur (GM and the Elders/Fosters group in Australia) to prepare the company for sale to an outside purchaser. One thing which he had to do to that end was to repair as best he could the fractured relationships between Inntrepreneur and a substantial number of its lessees. He also wanted, in his terms, to ‘recover’ the tie within Inntrepreneur, that is to say to secure Inntrepreneur’s release from the Undertakings. I think that he made progress on the first objective (repairing relations with the general body of lessees), although Inntrepreneur certainly continued to have, and still has to this day, quite a lot of hostile lessees and former lessees. Mr Crehan is one of them. Mr Foster did achieve the second objective: I have said earlier that Inntrepreneur was released from the Undertakings in 1997.[54]An important step which Inntrepreneur took while Mr Foster was its chief executive was to introduce a system called RetailLink. This substantially reduced the grievances of tied tenants over having to buy their beers from Courage at list prices and without the generous discounts which were available to free trade competitors. RetailLink commenced in February 1997 and ran until 28 March 1998. The lessees continued to be bound by the ties to purchase their supplies from Courage (or Scottish Courage as the nominated supplier had become, as I will explain below), and they continued to have to pay list prices. However, under RetailLink Inntrepreneur (not Courage or Scottish Courage) paid discounts to the tenants (or to those of them who agreed to participate in RetailLink) by reference to their purchases. I do not know whether the discounts fully matched the sorts of discounts which breweries were paying to free house purchasers, but they were generous enough to play a part in persuading the Department of Trade and Industry to release Inntrepreneur from the Undertakings. Also, as I will explain later, they were regarded as acceptable by the Commission, which had not taken the same view about the structure which operated before the introduction of RetailLink.[55]I said in the foregoing paragraph that RetailLink operated until 28 March 1998. Before I explain what happened after that date there are two other events which I must describe. First, in August 1995 the brewing assets and interests of Courage had been sold to Scottish & Newcastle, which created a division or a subsidiary (I am not sure which) called Scottish Courage to carry on the brewing activities. That is the background to the nominated supplier under RetailLink becoming Scottish Courage rather than Courage. I should make clear that the transaction with Scottish & Newcastle was a sale of underlying business assets, not a sale of the companies which had carried them on. Before the sale Fosters (of Australia) owned Courage Group Limited and Courage Group Limited owned Courage Limited. Courage Limited owned the underlying brewing businesses. After the sale to Scottish & Newcastle Fosters still owned Courage Group Limited and Courage Group Limited still owned Courage Limited, but Scottish & Newcastle owned the main brewing assets which had formerly been owned by Courage Limited. There have been subsequent changes of company names. Courage Group Limited is now called Brewman Group Limited, and is the second defendant to Mr Crehan’s claim. Courage Limited became called The Inntrepreneur Beer Supply Company Limited, later shortened (or so I believe) to TIBSCO Limited. Under one or other of those names it has featured in some of the litigation which has continued to flow from the structure of Inntrepreneur and other companies associated with it by shareholdings or by regular business links.[56]The second event to mention is that on 21 September 1997 The Grand Pub Company Limited acquired an option to purchase the Inntrepreneur companies. It was exercised on 28 March 1998. The Grand Pub Company Limited was associated in a complicated way with the Nomura group of companies ultimately owned in Japan. The importance of this is that since 1998 there has been no ownership link between Inntrepreneur and any brewery, so there are no shareholding pressures on Inntrepreneur to limit the range of beers available for purchase by its tied tenants.[57]Finally before I can move on to the next sub-heading and describe the specific circumstances of Mr Crehan, I wish briefly to describe what succeeded the RetailLink system after 28 March 1998. That was the date on which the Beer Procurement Agreement for Courage (later Scottish Courage) to be the supplier of beers to tied Inntrepreneur tenants terminated, and also the date on which the Inntrepreneur group came to be owned by The Grand Pub Company Ltd. (It was also the date on which Inntrepreneur would have been required by the Undertakings to release all its remaining tied pubs from tie, if it had not been released from the Undertakings in 1997.) Inntrepreneur introduced a new system called SupplyLine. The lessees continued to be tied to make their purchases of beers (other than one guest ale, non-alcohol beers, and low alcohol beers) from Inntrepreneur’s nominated supplier. The nominated supplier became SupplyLine Limited, a company in the same group as Inntrepreneur. As such it has no shareholding or other links to brewers, and it offers a list of products to Inntrepreneur lessees which are brewed by many different brewers (fifteen or more). So the lessees are still tied in a sense, but through SupplyLine they have access to a wide range of products wholly uninfluenced by shareholding connections. I do not know whether SupplyLine offers discounts, and the SupplyLine structure arose long after the period with which I am directly concerned. But I did not detect any suggestion in the hearing that the current body of tied Inntrepreneur lessees exhibits any major dissatisfaction with or hostility to the present arrangements. It seems possible that relations between Inntrepreneur and its tied tenants have settled down and are now less strained than they were for much of the 1990s, and certainly in the years from 1991 to 1993 when Mr Crehan was the lessee of The Cock Inn and The Phoenix. Factual strand 3: Mr Crehan and the history of his involvement with The Cock Inn and The Phoenix[58]Mr Crehan is Irish. He was born in Ireland in 1947. He first worked in the pubs business at the age of 19. He became a barman in a pub in Dublin, and, as he engagingly expresses it, ‘poured pints of Guinness for the first six months’. He came to England in 1967, and has lived in this country since then, although he has relatives in Ireland and clearly keeps up his connections with his home nation. He worked in various pubs in the south of England over the years, starting as barman in a pub in Clapham, and progressing through more senior and responsible jobs until he became an employed manager of a succession of managed houses.[59]Early in his time in England he met Dolores Carroll, who is also Irish, and they were married in 1968. This is not a case in which it is necessary to go into the nature of the two of them as a family, but they gave to me all the appearances of being a close and committed couple. They have two sons, who were born in 1969 and 1970. A number of customers of pubs which they have run gave evidence. Clearly everyone liked them. Mr and Mrs Crehan each gave evidence, and they gave the impression of being sincere and likeable people.[60]The last pub of which Mr Crehan was a manager was a Courage managed house, the Load of Hay in Bedfont, to the south of London Airport. He started there in September 1989, and was there for a little less than two years – until he became the tenant of The Cock Inn and The Phoenix. The Load of Hay had been a difficult pub, and two previous managers had failed to turn it round. Mr Crehan said in his evidence, which was not disputed in this respect, that he and his wife improved the quality of the pub, and also significantly increased the turnover. He looked after the cellar and the bar. She prepared the food and did the book work. They exceeded Courage’s target in the first year, and were paid a bonus as a result.[61]In 1991 Mr Crehan was aware of Inntrepreneur and its business. He was also aware that a number of pubs, some of which had previously been managed houses, were available for letting on the terms of Inntrepreneur leases. He and his wife were attracted by the idea of running their own pub, and believed that they had the experience and the abilities which would enable them to do so successfully. One pub in which they were particularly interested was The Phoenix, in Staines. Staines is only a few miles from Bedfont. Mr Crehan did not know the town particularly well, but he did know something about The Phoenix. The Phoenix was a Courage managed house at the time, and occasionally meetings of managers of Courage managed houses in the area were held at The Phoenix. Mr Crehan had seen the pub on those occasions, and he thought that it had potential. As well as the large bar area there was a function room. It needed work doing to it, but Mr Crehan thought that, once the work had been done, there would be good possibilities of attracting new business. There was a small tributary of the Thames behind the pub, with a derelict area of land, quite like an island, across it but included in the grounds of the pub. Mr Crehan thought that that area could be made into an attractive beer garden. He knew that The Phoenix was one of the pubs which Inntrepreneur was offering for letting, so he contacted Inntrepreneur and applied for the lease. He took advice in the first instance from an experienced pub stocktaker, who was introduced to him by a friend who ran a pub in Twickenham.[62]Under Inntrepreneur’s system for new lettings of pubs the rents to be sought by Inntrepreneur were established by panels, but the contacts with prospective lessees were handled by individual employees, known as consultants. The consultant with whom Mr Crehan had contacts was Mr Ebdon. Mr Ebdon gave evidence, but he was not able to help much about the exchanges between himself and Mr Crehan. He explained that over about three years as a letting consultant he had been responsible for letting between 150 and 200 pubs, and, though he had searched his memory, he could not recall anything specific about Mr Crehan or about The Cock Inn and The Phoenix. Inntrepreneur appears to have retained very few documents to cast light on the negotiations. However, Mr Crehan remembered a good deal, as one would expect, and the outlines of what happened can be reconstructed in broad terms.[63]Mr Ebdon told Mr Crehan at some stage in the exchanges between them that if he (Mr Crehan) was offered a lease of The Phoenix, he would have to take a lease of The Cock Inn as well. The Cock Inn is only a few yards away from The Phoenix, diagonally across a quiet crossroads. Mr Crehan had not been interested in The Cock Inn, but the negotiations appear to have been conducted on the basis that it would be both pubs or neither. However, the limited quantity of financial documentation which survives from the period before agreement was reached relates solely to The Phoenix. Another thing which Mr Crehan remembers being told by Mr Ebdon was that both The Phoenix and The Cock Inn had weekly takings of about £4,000 a week. Although Mr Ebdon was not able to confirm that he said that or something like it I think that he must have done. Mr Crehan would not have made it up, and in any case he supplied the figure to his accountant, Mr Neal (of whom more later). Where can Mr Crehan have got the figure from if not from Mr Ebdon?[64]Mr Crehan had perhaps three meetings with Mr Ebdon over what seems likely to have been a fairly short period in the summer of 1991. In addition there were several telephone conversations. At (probably) one meeting Mr Crehan was accompanied by Mrs Crehan, and on one occasion (I cannot say whether it was the same meeting or not) he was accompanied by Mr Neal. One of the items which Inntrepreneur wanted to see from an applicant lessee was a projected business plan. A draft plan for The Phoenix (in the form of an outline trading account) was prepared for Mr Crehan by the stocktaker who had been introduced to him by his friend. It showed an estimated profit before rent of £65,840.11. Mr Crehan retained a copy. It is, to be frank, a rather rudimentary document, and has some particular deficiencies (for example no provision for the costs of providing entertainment, although there was an added note – I think in Mrs Crehan’s handwriting – that the Crehans planned to provide more entertainment for younger people). However, the business plan seems to have satisfied Mr Ebdon: at some stage after Mr Ebdon saw it Inntrepreneur offered a lease of The Phoenix to Mr Crehan (together with a lease of The Cock Inn); the copy of the business plan which Mr Crehan has retained has some notes on it in Mr Ebdon’s handwriting, including a manuscript tick against the stocktaker’s figure for expenses.[65]As well as consulting the stocktaker Mr Crehan considered – entirely correctly and in conformity with advice which Inntrepreneur itself gave to applicants for leases – that he needed more expert financial advice. Therefore he instructed a firm of accountants, Freeman & Co, which specialised in accounting for licensed premises. Mr Neal of that firm acted for Mr Crehan. I do not think that they have had any connection beyond the unfortunately brief period while Mr Neal was advising Mr Crehan. Mr Neal was a witness for Mr Crehan in the trial. At some stage in the negotiating period Mr Neal prepared in manuscript a more detailed projected profit and loss account for The Phoenix and for The Cock Inn. Based on a turnover of £4,000 a week at each pub and making assumptions for catering receipts, machine income, and various heads of expenditure which Mr Neal, based on his experience and on discussions with Mr and Mrs Crehan, thought appropriate, Mr Neal projected annual net profits at The Phoenix of £18,906 and at The Cock Inn of £20,506. These profits, unlike the figure in the stocktaker’s business plan, were the profits after rent paid to Inntrepreneur. Mr Neal assumed rents of £36,000 at The Phoenix and £35,000 at The Cock Inn.[66]Those rents were the actual rents provided for in the agreements for lease, so it appears that Mr Neal prepared the projected accounts at some time after the rents were fixed, or at least after it was known what levels of rents Mr Ebdon was asking for on behalf of Inntrepreneur. In the negotiations about rent Mr Crehan had initially offered £26,000 a year for The Phoenix. I do not know whether he made any offer for The Cock Inn. Mr Crehan recalls that at an early meeting Mr Ebdon said that Inntrepreneur would want at least £30,000 for each pub. Eventually Mr Ebdon said that Inntrepreneur’s required rents were £36,000 for The Phoenix and £35,000 for The Cock Inn, and (as Mr Crehan recalls) Inntrepreneur would not budge from those figures.[67]There are two other matters which arose in the course of negotiations which I must describe. One concerns repairs to the pubs. The other concerns Mr Carroll, Mrs Crehan’s brother. Inntrepreneur required Mr Crehan, as a condition of obtaining the leases, to carry out quite substantial programmes of repairs to both pubs within the first year of taking them over. Mr Ebdon said that the repairs would cost about £60,000, but a surveyor consulted by Mr Crehan estimated that the costs would be approaching £120,000. Mr Crehan protested to Mr Ebdon, and eventually (very close to the time when contracts were exchanged, or possibly even just after it) Inntrepreneur agreed upon rent concessions in the first year to reflect the cost of the repairs which Mr Crehan was undertaking to carry out. The combined rents (£71,000 for the two pubs) would be reduced to £35,000 in the first year. In fact Mr Crehan expected that the cost to him would be manageable, because Mr Carroll was a builder and would do the works much more economically.[68]The matter concerning Mr Carroll which I need to describe does not concern the works of repair, but the more fundamental topics of how Mr Crehan’s new business venture was to be funded, and whether it was his venture alone or whether Mr Carroll was a joint participant with him in it. Mr Crehan could not take on two pubs as lessee without a reasonable amount of capital to back him. There would be ‘ingoings’ to pay: the price of the glassware, furniture and so on with which the pubs were equipped, and which would be in the pubs when Mr Crehan’s occupation commenced. There would be costs incurred on the repairs, even taking into account the rent reductions in the first year and Mr Carroll’s ability to do most of the work himself. There would be costs of improvements which Mr Crehan wanted to do, for example building a new footbridge across the small river behind the pub and creating a beer garden there. There would be the more general need for a reasonable cushion of working capital to finance the operations of the business in so far as it could not be assumed that the takings would immediately cover all the running expenses. And the family would need some money to live on while they were getting their business established. Where was the money for these various purposes going to come from?[69]The answer was that most of it was to come directly or indirectly from Mr Carroll. In the middle of 1990 he had won IR£250,000 on the Irish lottery. He gave IR£25,000 to his sister, Mrs Crehan, and he paid to her a further IR£25,000 as the price of her interest in the house of their late father, who had died in 1990 and left his house to Mr Carroll and Mrs Crehan. So Mrs Crehan had IR£50,000, originating from Mr Carroll in the two ways which I have described, which could be made available for the pubs. In addition, when Mr Crehan decided to take on the leases of the pubs, Mr Carroll agreed that he would contribute a further sum of about IR£50,000 to the business. The precise basis on which he did this is, in my view, most unclear. Was it a gift to Mr Crehan? Was it technically a loan to Mr Crehan, but in circumstances where in practice Mr Crehan could assume that he would not have to pay it back unless and until it was easy to do so? Was it some form of investment by Mr Carroll for an interest in the business? I will have to say more about these possibilities later (see paragraphs 292 et seq below), but for the moment the point which I make is that there was money available to finance the venture in its early period, and the money traced originally, by various routes, to Mr Carroll’s lottery win.[70]The precise status of Mr Carroll in relation to the pubs and the business of operating them was further affected by what happened as regards the title to the two agreements for leases. In the event, when agreements were exchanged they were expressed to be made between(1) Inntrepreneur’s predecessor (see the next following paragraph) as landlord, and(2) Mr Carroll and Mr Crehan as ‘the Lessee’. This led Mr Neal to make the natural assumption that the leases and the business were to be owned by Mr Carroll and Mr Crehan in partnership. To anticipate, when Mr Neal prepared accounts for the first twelve months trading he prepared them as accounts of a 50/50 partnership. It would not be at all unusual to have a partnership between one person who understood the nature of the business and would in practice run it, and another person who put up a substantial part of the money which was going to be used in the business. However, Mr Crehan, Mrs Crehan and Mr Carroll all gave evidence to me that it was not like that at all, and that Mr Neal’s assumption was incorrect. The evidence of all three of them was that Mr Crehan was the sole owner of the business, notwithstanding that the principal assets of the business were the two agreements for lease and that Mr Carroll was a party to those agreements jointly with Mr Crehan, and also notwithstanding that Mr Carroll contributed a substantial amount of capital to the business. They said that to put Mr Carroll on the title to the leases was a nice gesture, but nothing more than that. If at some future time he wanted to become a publican in Ireland it might help him to have been one of the nominal lessees of Mr Crehan’s two pubs. In my opinion this is a thoroughly untidy aspect of the case. I will have to come back to it later, but for the moment I will continue with this judgment on the basis that, despite what might have appeared from the agreements and from the source of the funding, Mr Crehan was the sole proprietor of the business.[71]While I am referring to the agreements for leases of the two pubs there is a detailed fact which I should mention. One would have expected the other party to them (other, that is, than Mr Carroll and Mr Crehan) to have been Inntrepreneur. In fact it was Courage Group Ltd (now renamed Brewman Group Ltd, the second defendant to Mr Crehan’s claim). The reason for this was that the two pubs had been managed houses and were intended to be transferred from Courage Group Ltd to Inntrepreneur with a view to their being let on Inntrepreneur leases, but the transfers had not taken place at the time when agreements with Mr Crehan and Mr Carroll were exchanged. The agreements described Inntrepreneur Estates (CPC) Ltd as the ‘Intended Reversioner’, to which the freeholds were going to be transferred. They were so transferred soon afterwards, and for all effective purposes it was Inntrepreneur which was Mr Crehan’s landlord throughout.[72]The agreements for leases were exchanged on 11 July 1991, and Mr Crehan’s occupation of the pubs began on that date. The leases themselves were only to be granted upon Mr Crehan completing the works of repair which the agreements provided for. Until then he was entitled to possession of the premises ‘as licensee only’, but was liable for the rents and bound by the covenants contained in the leases. Forms of lease were annexed to the agreements. The leases were in the standard form for Inntrepreneur leases: 20 years terms, rent reviews at five yearly intervals, repairing, maintenance and insurance covenants on the part of the lessee, assignability of the leases after the first two years (except to brewers or associated companies of brewers), the general range of detailed covenants typically found in lettings of business premises, and – critical so far as this case is concerned – the beer tie provisions.[73]At this point it is convenient for me to give more details than I have given so far of the contents of the beer tie provisions. ◦ Mr Crehan entered into agreements for leases. The agreements said that his occupation was as licensee until the leases were formally granted. In the events which happened the leases never were formally granted, because Mr Crehan did not complete the works of repair. However, the forms of leases were annexed to the agreements. ◦ By clause 9 of each agreement for lease Mr Crehan had at all times to comply the covenants and obligations contained in the lease as if the lease had been granted. The agreement did not itself contain the beer tie provisions, but those provisions took effect by virtue of this clause 9. ◦ In the lease the lessee’s covenants were contained in clause 4. By the last of them, in sub-clause (34), the lessee (and thus Mr Crehan) covenanted with Inntrepreneur ‘to comply at all times with the terms of the First Schedule hereto’. The First Schedule contained the detailed beer tie provisions. ◦ The critical provision of the First Schedule was clause 2(1): Subject to the provisions of this Schedule the Lessee shall purchase from the Company [Inntrepreneur] or its Nominees and from no other person firm or company all such Specified Beers as he shall require for sale in the Premises … One effect was that the supplier to Mr Crehan could be Inntrepreneur itself or, if Inntrepreneur so chose, another person nominated by Inntrepreneur. At the time of Mr Crehan’s agreements it had nominated Courage. ◦ The tie applied to purchases of ‘Specified Beers’. That term meant beers of the types set out in Part A of an Appendix. Thirteen types of beer were listed in the Appendix, which certainly seems exhaustive. The beers were not listed by brand name but by types of beer, for example ‘Light pale or bitter ale’, ‘Export or premium ale’, ‘bitter stout or porter’, ‘Lager’, ‘Export or premium lager, also known as ‘Malt Lager’ or ‘Malt Liquor’’, ‘Strong lager’. ◦ The ‘Specified Beers’ were said to be ‘represented by the brands or denominations of beer stated in the Company’s Price List issued before the date of’ the agreement for lease’. There was a definition of ‘Company’s Price List’ which, by using the expression ‘price list for the time being’ made it clear that the price list could be changed from time to time, as in fact it was. It also said that it was the Price List of ‘the Company’ (which meant Inntrepreneur) or, where applicable, of its ‘Nominees’. ◦ ‘Nominees’ was also defined. It meant ‘the person … specified in the Particulars and/or such person firm or company as [Inntrepreneur] may from time to time specify’. The person specified in the Particulars was Courage Limited, but the definition made it clear that Inntrepreneur could change the identity of the Nominee if it wanted. Inntrepreneur did do that when it nominated SupplyLine to be the Nominee with effect from 29 March 1998. I am not sure what happened in 1995 when Scottish Courage rather than Courage became the nominated supplier. Possibly Inntrepreneur nominated Scottish Courage, or possibly the benefit of the earlier nomination of Courage was one of the business assets which Courage assigned to Scottish & Newcastle on the occasion described in paragraph 55 above. ◦ I have made the point earlier that Courage’s price lists in practice carried a large range of beers, naturally including the various brands which Courage brewed itself (some of them being brewed under licence from foreign owners of the brands), but also including quite a large number of brands which were not brewed by Courage. (See paragraph 34(ix) above.) ◦ Paragraph 2(2) of the Schedule makes it clear that Inntrepreneur or its nominee (Courage at the outset) could change the brands on the price lists from time, by adding or deleting brands. It was not possible, however, to add a new type of beer to the list of ‘Specified Beers’. ◦ Paragraph 7 of the Schedule provided that the lessee could purchase one guest ale otherwise than from Inntrepreneur or its nominee.’ ◦ Paragraph 9 was a lengthy paragraph which imposed on the lessee a ‘Required Beer Barrelage’, more commonly referred to in practice (though not in the actual wording of the lease) as the Minimum Purchase Obligation (or MPO). The lessee was bound to purchase a specified minimum quantity of beer and was supposed to pay compensation at a predetermined rate for every barrel by which he failed to meet this obligation. However, in practice this obligation was hardly ever enforced. Mr Crehan did not (I think) succeed in complying with his MPO, at least at The Cock Inn, but Inntrepreneur made no attempt to recover compensation from him. (I have mentioned earlier that Inntrepreneur was suffering from a lot of bad publicity, and I surmise that, if Inntrepreneur had adopted a policy of trying to enforce compensation claims against struggling tenants who could not meet their MPOs, the publicity would have become a great deal worse than it already was. In any case, the compensation would have gone to Courage, and, as Mr Williams said in his evidence, Inntrepreneur was not interested in enforcing it.) ◦ There are other provisions in the First Schedule to the leases, but the ones which I have mentioned are sufficient for the purposes of this judgment.[74]Mr and Mrs Crehan took over the pubs with high hopes, and they say (I am sure correctly) that they worked very hard to make them attractive and successful. They aimed to attract a younger clientele to the The Phoenix in the evenings, and to that end had always visualised putting on entertainment several times a week. Their idea was that The Cock Inn should appeal more to older pub-goers, and they tried to make the pub look attractive to the type of customer they had in mind. They provided food, which Mrs Crehan cooked herself, at low prices. However, despite their hopes and efforts, things started to go wrong. Sales were far below expectations at both pubs, and especially at The Cock Inn. With a view to attracting custom to The Phoenix Mr Crehan judged it appropriate to put on considerably more entertainment than he had planned, and thereby had substantially greater costs to meet for fees to performers and the like. The prices which Mr Crehan charged for drinks in the pubs were based on advice which he requested from, and was given by, Mr Neal. When business failed to materialise at the levels Mr Crehan needed for the pubs to succeed he did not think that he could afford to reduce his prices.[75]Mr Neal prepared accounts for the first twelve months to 10 July 1992. At The Phoenix there had been a net loss of £1,157. At The Cock Inn there had been a net loss of £13,810. Of capital of over £90,000 introduced into the two pubs less than £20,000 remained. The balance had been consumed by losses and drawings by Mr Crehan and Mr Carroll. The drawings had not been extravagant: Mr and Mrs Crehan and Mr Carroll had had to meet their living expenses, and in the absence of profits from the pubs for that purpose they had had to resort to the capital which had been put into the business when Mr Crehan commenced to carry it on. (I ought to mention that for quite a lot of the first year of trading Mr Carroll was living at one of the pubs, working on some of the repairs required by the agreements for leases, and doing other building works, like creating the beer garden at the back of The Phoenix.) The net cash balance for the two pubs at 10 July 1992 was recorded as only £2,377. About £47,000 had of necessity been paid for the ‘ingoings’ (the glassware, furniture, etc in the pubs when Mr Crehan acquired them). Some cash had been spent on some of the repair and other works which Mr Carroll had carried out. Some had gone on funding the losses, and some had gone on the drawings to meet living expenses. There had been cash receipts over the year, in the form of receipts across the bar from customers, but taking all things together there was not much cash left. If all current assets and liabilities were taken together (not just cash) current assets were under £50,000 while current liabilities were over £80,000.[76]The first trading year had been a disaster. What had gone wrong? At neither pub had the turnover come remotely near to what had been expected. At The Cock Inn the beer barrelage in 1990 (the year before Mr Crehan took over) had been 335. In Mr Crehan’s first year of trading it was 197 or 201 (the statistics differ). At The Phoenix a barrelage in the region of 400 had been expected. The barrelage achieved was 271. I should add that that was the same as the actual barrelage in 1990, but there is a lot of evidence that in the case of The Phoenix 1990 was regarded as a freak low year, and that in all earlier years barrelages of 400 or more had been achieved. Gerald Eve, Inntrepreneur’s and Courage’s valuers, had valued The Phoenix for mortgage purposes in January 1991; they assumed a barrelage of 420. Mr Butters, a partner in Gerald Eve and Inntrepreneur’s expert valuation witness in the trial, in considering the market rent of The Phoenix in mid-1991 – when Mr Crehan’s occupation commenced – assumed a barrelage of 420.[77]Why did the actual sales of beer and other products in The Phoenix and The Cock Inn turn out to be so low? This is one of the disputed issues in the trial, and I shall examine it at a later stage. I ought, however, to record now what Mr Crehan says about it. His case is that the low turnover was not attributable to failings on his part, but to the impact of competition from other pubs, and one pub especially, which were able to purchase their beers at discounted prices and to sell it to customers at prices with which he could not possibly compete. His problem, as he sees it, was that by virtue of the beer tie he was bound to purchase most of his beer supplies (including all of his supplies of lager, by far the largest seller in the pubs) at the full prices in Courage’s list, whereas competitors could buy their supplies at discounts which left him suffering an unsustainable competitive disadvantage.[78]The particular competitor pub which Mr Crehan identifies as the main cause of his downfall is The Angel, an untied pub on the High Street about 150 or 200 yards from The Cock Inn and The Phoenix. He says that within about two weeks of his arrival at The Cock Inn and The Phoenix The Angel dramatically cut its prices. It may have happened that way, although it is possible that The Angel was already selling beer at the low prices before Mr Crehan took over The Cock Inn and The Phoenix, and that Mr Crehan did not realise that for a few weeks after his arrival. Either way the evidence, which in broad outlines I accept, is that, while Mr Crehan, guided by the advice of Mr Neal, was selling his major items of turnover, Fosters lager and Courage best bitter, at about £1.60 and £1.40 a pint respectively, The Angel was selling the same two products at about £1.20 and £1.00 a pint. Several witnesses, both regular drinkers and experts, expressed the view, with which I concur, that, while price differentials of about 10p a pint would not make much difference to levels of turnover, differentials of about 40p a pint were a different matter.[79]Mr Crehan also says that later in his occupation he started to suffer from similar price competition from a nearby pub which had been acquired by new owners and had reopened under a new name as The Hobgoblin. Having heard evidence from a director of the company which ran The Hobgoblin (Mr Adams), I believe that Mr Crehan has overestimated the extent to which low prices at The Hobgoblin affected competition between that pub and his own. I do not think that The Hobgoblin pursued a regular policy of selling beer at heavily reduced prices. That is not to say that it did not occasionally run sales promotions based on reduced price levels: for example, Mr Adams thought that it might well have done that for two weeks or so immediately after it reopened under its new name.[80]At all events, Mr Crehan’s case, which I will examine at a later point, is that, if he had not been required by the beer ties to purchase most of his supplies at Courage’s full list prices, he would have been able to compete on prices with other pubs like The Angel and would have survived. Thus he says that it was the beer ties which caused his business to fail.[81]The immediately preceding paragraphs have commented on why things went so badly for Mr Crehan in his first year of trading. I now resume my account of his occupation of The Cock Inn and The Phoenix. He and his wife persevered through the second half of 1992 and into 1993, but they could not turn the pubs round, particularly The Cock Inn. They had the additional problem that at both pubs, but principally at The Cock Inn, they had not carried out all of the works of repair which they were required to carry out by the agreements for lease. Mr Dowling, Inntrepreneur’s internal surveyor, had been considerate about this and had allowed one or more extensions of time, but the reality was that Mr Crehan, even with the help of Mr Carroll, was not going to be able to complete the works, at least at The Cock Inn. On 4 March 1993 Inntrepreneur agreed to accept from Mr Crehan a surrender of his agreement for lease at that pub. So ended Mr Crehan’s business venture so far as The Cock Inn was concerned. The position at The Phoenix was different, and I describe it in paragraphs 83 to 86 below.[82]There are no accounts for the trading period at The Cock Inn from 11 July 1992 to the date of surrender, but Mr Main, the expert accountancy witness for Mr Crehan, has reconstructed the profit and loss for that period as best he can from such accounting records as are available and from estimates where there are no records. He calculates that there was a small estimated profit for the period of £2,849. On that basis, over the 20 months that Mr Crehan traded at The Cock Inn he made an overall loss of £10,961.[83]I turn to The Phoenix, and deal with the period after Mr Crehan’s first year there. He did not give up his agreement for lease of The Phoenix at the same time as he gave up his agreement for lease of The Cock Inn. He carried on trading at The Phoenix, trying to survive and to have his business turn the corner into a reasonable level of profit. However, he did not succeed, and on 7 September 1993 he surrendered the agreement for that pub as well. So he traded there for a total of some 26 months. As with The Cock Inn there are no accounts for the trading period at The Phoenix after Mr Crehan’s first complete year (the year to 10 July 1992), but Mr Main has done his best to reconstruct a profit and loss account. He estimates a loss for the period from 11 July 1992 until 7 September 1993 of £33,369. If that is correct the loss at The Phoenix for the whole 26 months of trading was £34,526.[84]One event affecting The Phoenix in Mr Crehan’s second year of occupation which may be important is that on 31 October 1992 he was released from the beer tie so far as it applied to The Phoenix. (The tie continued to apply as respects The Cock Inn.) It will be recalled from my general account of Inntrepreneur’s business that, as required by the Undertakings, it released 2,098 pubs from tie on that date. The Phoenix was one of the pubs which it released. I believe that from the time when Mr Crehan’s occupation of The Phoenix commenced he knew that Inntrepreneur had designated it as one of the pubs which it was going to release from tie. It might have been expected that when The Phoenix went free from tie Mr Crehan’s fortunes would take a turn for the better: he would no longer have to pay Courage’s undiscounted prices for any of his supplies of beer, whereas in the past he had had to pay those prices for all his supplies except supplies of the guest ale, non-alcohol beers and low alcohol beers; and he ascribed his financial problems to being unable to obtain discounts on the general run of his purchases. However, Mr Crehan explained that he was already too deeply in financial trouble for the release from tie to make much difference. He told me that he owed large amounts to Courage for unpaid invoices for beer which he had received in the past but had not paid for yet. Courage could have called in the debt immediately and effectively forced him out of business. Charringtons (in the Bass group) offered him discounts of £60 per barrel, but he felt unable to do business with Charringtons because of his debts to Courage. Courage also offered him discounts, but quite soon after he went free of tie Courage withdrew his credit and required him to pay cash on delivery for further supplies. He had major problems raising the cash to comply, and for some time bought his supplies, or some of them, from a firm of wholesalers. Going free of tie at The Phoenix in November 2002 was not enough to save Mr Crehan’s business at that pub, and, as I have said, in September 1993 he surrendered his agreement for lease and ceased to trade. I believe that he owed arrears of rent to Inntrepreneur and unpaid debts for beer supplies to Courage. He was unable to pay either of them.[85]In March 1993 he had entered into a financing transaction with a company called Bampton Finance Limited. It should have raised something over £18,000 which he needed to complete the outstanding repairs to The Phoenix still required by the terms of the agreement for lease. The transaction with Bampton Finance Ltd was structured as a sale and lease-back of the furniture and fittings of the pub. It was on very expensive terms. In cross-examination of Mr Main (the expert accountancy witness for Mr Crehan) Mr Lewison suggested to him that the Bampton Finance transaction was hardly the decision of an astute businessman. Mr Main replied that it was ‘probably the decision of somebody who is in a desperate financial position and knows that he has got to do his repairs.’ Everything was going wrong for Mr Crehan at this time. If I have understood correctly, the Bampton Finance transaction was linked in some way with a contract between Mr Crehan and a building company called InnPlan Contracts Limited for InnPlan to do some items of works which Mr Carroll had not been able to do. The Bampton Finance money went to InnPlan, which did less than £7,000 of work and then became insolvent. Mr Carroll had to complete the works. Mr Crehan was still liable to Bampton Finance for the full amount, and he told me that under a court judgment he is still paying instalments of money to Bampton Finance to this day.[86]Despite Mr Crehan’s desperate efforts to keep going at The Phoenix it became apparent that his debts were too great. For a time he left his wife and Mr Carroll in charge of the pub for a lot of the time and tried to obtain paid employment himself elsewhere. He was hoping to earn money which would enable him to carry on at The Phoenix in the hope that in time things would improve. He did not succeed in earning money elsewhere. A manager of Inntrepreneur suggested to him that he should surrender his agreement for lease. He consulted his accountant, Mr Neal, who said that, since he was just accumulating debt at The Phoenix, he would be better off handing the keys back. Mr Crehan accepted the advice, and, as I have said a few paragraphs earlier, he surrendered the agreement on 7 September 1993.[87]Since Mr Crehan gave up The Cock Inn and The Phoenix he has made many job applications in trying to find employment as a publican, but has not succeeded. There has been quite a lot of publicity for his role as a leading litigant against Inntrepreneur and Courage, and he believes, rightly or wrongly, that he has been blacklisted in the trade. He and his wife have been on income support since they left The Phoenix. Factual strand 4: Inntrepreneur’s contacts with the Commission in Europe[88]I have described earlier what led to Inntrepreneur’s contacts with the Commission (see especially paragraph 49). By way of brief reminder, in many cases – some concerning beer prices unpaid to Courage and others concerning landlord and tenant disputes between Inntrepreneur and lessees – lessees were raising what Inntrepreneur referred to as ‘the Euro defence’. The central plank of the Euro defence was that the beer ties in the leases were contrary to article 81. Courage was having difficulty over recovering debts for beer already delivered, and Inntrepreneur was having difficulty over enforcing the rights which it appeared to have under the leases. For example, if a lessee was in arrears of rent and Inntrepreneur sought to forfeit the lease it might find itself confronted with a defence that the beer tie was unlawful and that one consequence was that Inntrepreneur could not forfeit the lease after all. In those circumstances Inntrepreneur and Courage notified the terms of the Inntrepreneur leases to the Commission on 17 July 1992.[89]At this point I need to digress and consider the structure of article 81, and also some matters of EC procedure. I have quoted the relevant wording of article 81 earlier (see paragraph 5). In brief article 81(1) prohibited all agreements between undertakings which might affect trade between Member States and which had as their effect the prevention, restriction or distortion of competition within the common market. Agreements so prohibited were void under article 81(2). However, that would not be so after all if the leases were saved from the invalidating effect of paragraphs (1) and (2) of article 81 by paragraph (3). As I explained in paragraph 7 above, paragraph (3) of article 81 provided that paragraph (1) could be declared inapplicable in the case of an individual agreement or a category of agreements which met certain criteria. The Council had made a Regulation, sometimes referred to as the ‘Block Exemption’, under which an agreement which came within the detailed terms of a paragraph in the Regulation was taken out of article 81(1) by article 81(3). In addition the Commission could grant individual exemptions under article 81(3) to particular agreements even if they did not come within the Block Exemption.[90]The Inntrepreneur lessees who were advancing the Euro defence were saying that, because of the beer tie provisions, the Inntrepreneur leases, or at least the tying provisions in them, first, were within article 81(1), and, second, did not comply with the Block Exemption. There were three possible answers to this which Inntrepreneur and Courage might advance:(1) the Inntrepreneur leases were not within article 81(1) in the first place;(2) if they were they were taken out of it by the Block Exemption;(3) if necessary the Commission should grant an individual exemption under article 81(3). By the notification to the Commission Inntrepreneur and Courage hoped to obtain confirmation from the Commission that all three, or at least any one, of the three possible ways out of article 81 applied to the leases. In order of preference and of logical application Inntrepreneur relied on the three ways out in the above order. The first argument was that article 81(1) did not apply to Inntrepreneur leases in the first place (referred to as ‘negative clearance’, as explained below); if that was wrong the second argument was that the Block Exemption applied; if that too was wrong the third argument was that the Commission should grant an individual exemption.[91]The Commission is the executive of the European Community. Under article 211 of the EC Treaty the Commission is charged with ensuring that the provisions of the Treaty, and the measures taken pursuant thereto, are applied and observed. One of the Commission’s functions is to enforce the competition rules of the Community, including article 81 and Regulations about competition which have been made by the Council. The Commission has 20 members, nominated by the Governments of the Member States. They are supported by a large permanent staff. At the times relevant to this case the Commissioner with particular responsibility for competition policy was Mr Van Miert. There are different divisions within the Commission. The division responsible for competition policy was DG IV. The Director (or a Director) of the Division was Mr Rocca. Two officials within his department, who took particular responsibility for Inntrepreneur’s notification and matters connected with it, were Mr Mensching and Mr Van Erps. Most of Inntrepreneur’s direct dealings with the Commission took the form of meetings and correspondence with Mr Mensching and/or Mr Van Erps. I may be wrong, but I have the impression that Mr Mensching was senior to Mr Van Erps.[92]The principal Regulation which the Council has made in the area of competition policy and law is Regulation 17/62/EEC, commonly referred to as Regulation 17. It is quite a long Regulation. I need only mention a few of the articles in it. ◦ Article 2 is headed ‘Negative clearance’, and provides as follows:
"Negative clearance 2. Upon application by the undertakings or associations of undertakings concerned, the Commission many certify that on the basis of the facts in its possession, there are no grounds under Article [81](1) or Article [82] of the Treaty for action on its part in respect of an agreement, decision or practice."
In the present case, and in this judgment, references to whether the Commission would or would not give negative clearance are the equivalent of references to whether or not the beer tie provisions of Inntrepreneur leases were or were not within article 81 of the EC Treaty. ◦ Article 3 provides that, if the Commission finds that there has been an infringement of article 81 or article 82, it may by decision require the undertakings concerned to bring the infringement to an end. The Commission may exercise this power either on its own initiative or upon an application to it by persons who claim to have a legitimate interest. Applications of this sort were made against Inntrepreneur by NAIL and by a number of Inntrepreneur lessees, including Mr Crehan. ◦ By article 4 of Regulation 17 agreements in respect of which individual exemption under article 81(3) of the EC Treaty is requested must be notified to the Commission. ◦ Article 9 provides that the Commission has the sole power to grant individual exemptions, and also provides that a decision by the Commission on an individual exemption is subject to review by the Court of First Instance. ◦ Article 19 deals with whether the Commission should hear the parties and third persons. Although the Commission is not a judicial body, article 19(1) provides that, before it takes decisions on various matters, including whether to give negative clearances and whether to grant individual exemptions, it must give the undertakings concerned an opportunity of being heard on any matters to which the Commission has taken objection. Article 19(2) provides that it may also hear other persons. ◦ Article 19(3) provides for the publication of advance notices. There have been several of these ‘19(3) notices’ in the present case. The sub-article provides that, where the Commission intends to give negative clearance or to take a decision on whether or not to grant an individual exemption under article 81(3), it must publish a summary of the application or notification and invite all interested third parties to submit observations. So a 19(3) notice is a necessary preliminary to the issue by the Commission of a formal decision. The sub-article does not require the notice to indicate the nature of the decision which the Commission is proposing to give, but it seems that in practice notices do do that.[93]I return to the specific facts of the notification by Inntrepreneur and Courage of the standard form of Inntrepreneur lease. The notification was made on a form, known as Form A/B, which is the appropriate form to use where the notifying party is seeking either negative clearance or an individual exemption. That was what Inntrepreneur and Courage were seeking, plus the further possibility of confirmation from the Commission that the Inntrepreneur leases came within the Block Exemption. Inntrepreneur and Courage anticipated that, if the Commission would decide in their favour on any of the three possible grounds, that would in practice put an end to the difficulties which they were experiencing by reason of lessees raising the Euro defence.[94]The notification by Inntrepreneur and Courage was the first step in a process which lasted for several years and involved a substantial number of meetings and many more exchanges of correspondence. It would be excessive for me to attempt to describe the process in detail. In the account which follows I will try to pick out the major events. A major reason why I need to do that is because of one of Mr Crehan’s submissions in the present case. Counsel submit on his behalf that the exchanges with the Commission were such that it would be an abuse of process for Inntrepreneur to be allowed in this court to advance two of its principal arguments, namely(1) that, notwithstanding the beer ties, the Inntrepreneur network of leases was never in breach of article 81(1) in the first place (alternatively expressed, that Inntrepreneur and Courage should have been given negative clearance), and(2) that the leases came within the terms of the Block Exemption..[95]The first major event after the notification was a meeting in Brussels attended by three representatives of the Commission headed by Mr Mensching, and by representatives of Inntrepreneur and Courage. The principal spokesman for Inntrepreneur and Courage was Mr Fleck. He or a colleague prepared a fairly full note of the meeting, and what I say about the meeting is based on the note plus Mr Fleck’s oral evidence about it. The same applies to subsequent meetings to which I will be referring. The first major matter of principle which arose concerned Inntrepreneur’s contention that article 81(1) did not apply in the first place, so that Inntrepreneur ought to receive negative clearance and did not need an exemption (either under the Block Exemption or by way of individual exemption). Mr Mensching and his colleagues were unreceptive to this. The same applied to Inntrepreneur’s and Courage’s contention that the Block Exemption applied. On these points the note reads:
"We thought that there were good arguments for negative clearance but accepted that the Commission had taken the view that article [81] did apply and it would be fruitless to have that debate today. … The Commission representatives made it clear that they did not see scope for a straight application of the Block Exemption. They were considering individual exemption … ."
[96]What happened in the 19 November 1992 meeting as regards negative clearance and the Block Exemption set the pattern which was followed consistently throughout the subsequent exchanges with the Commission over several years. The position adopted by Mr Mensching and his colleagues always was that Inntrepreneur could not qualify for negative clearance (i.e the conditions of article 81(1) were present), and that Inntrepreneur could not bring itself within the Block Exemption either. The attitude of Inntrepreneur on nearly all occasions was not to concede what Mr Mensching and his colleagues said on those matters, but not to argue against it either. Instead, Mr Fleck and his colleagues concentrated their efforts on getting an individual exemption. At the time an individual exemption, although it was only Inntrepreneur’s third string argument, would have been enough to serve Inntrepreneur’s (and Courage’s) purposes. If the Commission had granted an individual exemption Inntrepreneur and Courage believed (in my view correctly) that that would have got rid of the problems which it was having over the Euro defence.[97]However, the position is different now. At the present stage Mr Crehan is seeking damages against Inntrepreneur. It would not help Inntrepreneur to defeat Mr Crehan’s claim if I were to say that in my view the Commission ought to have granted an individual exemption: only the Commission can grant an individual exemption from article 81, and if it does not grant one in a case which is otherwise within article 81, then the article applies. On that basis the first step in Mr Crehan’s claim (that the beer ties in the leases were in breach of article 81) would be successfully established. To succeed in defeating Mr Crehan’s claim at this stage of the argument (i.e. before getting involved in issues of whether it was the beer tie or something else altogether which caused Mr Crehan’s business to fail) Inntrepreneur needs to establish either the negative clearance proposition that article 81(1) never applied in the first place (despite the view of Mr Mensching and his colleagues that it did), or that the Block Exemption applied (despite the view of Mr Mensching and his colleagues that it did not).[98]In that connection counsel for Mr Crehan seek to base arguments on the feature that in the first meeting with the Commission and in subsequent meetings Mr Fleck and his colleagues did not argue against the positions being adopted by the Commission on negative clearance and on the Block Exemption. I will consider the arguments at a later point, but I should here record what Mr Fleck said in his evidence in so far as it bears on this issue. I add that Mr Fleck is a distinguished solicitor and a partner in a distinguished firm, and that it goes without saying that I accept what he told me.[99]He said, both in his witness statement and in oral evidence, that he and his colleagues never said that they accepted the position being adopted by the Commission on negative clearance and the Block Exemption. The Commission always knew that Inntrepreneur reserved the right to argue those points if it needed to. However, Mr Fleck and his colleagues, in their exchanges with the Commission, did not say that stridently or often. He, as the principal spokesman for Inntrepreneur and Courage, was particularly anxious not to antagonise Mr Mensching and thereby to impair the prospects of securing an individual exemption. In his witness statement he wrote:
‘I do recall that on one occasion, for example, Mr Mensching became extremely irritated with a colleague who attempted to enter into the debate with him about this.’
He clearly considered that Mr Mensching was not the easiest person to have regulatory discussions with, and that considerable tact was needed. I quote three short extracts from his oral evidence: Mr Mensching is an individual with a robust view of the way he conducts a meeting and my first experience of Mr Mensching was educational, to put it at the lowest.’ [Transcript Day 14 p.52] There were … a number of occasions … when I made a point at the outset which did not exactly get the meeting off to a good start, and then … the position needed to be recovered because he was resistant to the suggestion that these sort of matters should be debated. He was simply not willing to debate these matters at meetings, and it was a factor one had to take into account as one dealt with the Commission and its officials. [Day14 p.54] Yes, it would have been utterly counter-productive to have gone back to those issues at this particular juncture. I suspect that would have been the termination of all discussions. [Day 14 p.96][100]I move on now to describe how the exchanges with the Commission progressed, having pointed out that the focus of them was whether Inntrepreneur and Courage would or would not receive an individual exemption for the standard form Inntrepreneur lease, whereas the critical issues for the purposes of Mr Crehan’s case at this stage are different ones, namely whether Inntrepreneur qualified for negative clearance from article 81 and whether, if not, its leases were covered by the terms of the Block Exemption.[101]Still dealing with the first meeting on 19 November 1992, the Commission representatives indicated that they were at that point sympathetic to the idea of an individual exemption being granted. There were a few details to be sorted out, but the indications were that the Commission would probably be able to issue a 19(3) notice quite soon, such a notice being a necessary preliminary to the grant of an individual exemption. There was then one more meeting and several exchanges of letters and drafts. The Commission was taking a favourable view of Inntrepreneur’s request for an individual exemption. It is clear from the correspondence that the Commission was particularly influenced by a belief that, even if tied lessees had to pay higher prices than free of tie publicans for their supplies of beer (sometimes referred to by the Commission as ‘differential pricing’), nevertheless the lessees received sufficient countervailing advantages of other kinds (such as being required to pay lower rents) to justify an individual exemption.[102]On 30 July 1993 the Commission issued the first 19(3) notice. The concluding paragraph read as follows:
"The Commission intends to take a favourable position in respect of the agreement, a summary of which is published here, by granting a retroactive exemption pursuant to article [81](3) … Before doing so the Commission invites all interested third parties to submit their observations within one month from the date of this notice … ."
The notice had stated in the opening paragraph that the parties had requested negative clearance or, if that was not possible, confirmation that the Block Exemption would apply, or if that too was not possible, an individual exemption under article 81(3). The notice made no further reference to negative clearance or to the Block Exemption, but Mr Vaughan and Mr Brealey submit, and I accept, that by implication the notice shows that the views of the Commission were that negative clearance could not be granted and that the Block Exemption did not apply.[103]It is worth pointing out in passing that, while these events were happening on, so to speak, the European stage, Mr Crehan was struggling to survive at his pubs in Staines, and, as I will explain under the next heading, was already starting to get involved in litigation arising from his period as the occupier of them.[104]By the stage which I have reached in the account so far, things seemed to be progressing reasonably well for Inntrepreneur with the Commission. True, Inntrepreneur had not persuaded the Commission that its network of leases was outside article 81(1) altogether so that a negative clearance should be granted. Nor had it persuaded the Commission that the Block Exemption applied so as to take the leases outside the sub-article. But it appeared that the Commission was likely to grant a negative clearance, which would serve Inntrepreneur’s purposes almost as well as a negative clearance or confirmation that the Block Exemption applied. However, soon afterwards matters took a turn for the worse for Inntrepreneur. By November 1993 some 190 lessees or organisations of lessees had written to the Commission, all criticising the positive case which Inntrepreneur had sought to make. All of them said that the rents were pitched at unreasonably high levels. NAIL went one stage further and presented a well-reasoned formal application to the Commission under article 3 of Regulation 17. That article provides that where the Commission, either upon application or on its own initiative, finds that there is an infringement of article 81, it may make a formal decision requiring the undertakings concerned to bring the infringement to an end.[105]As well as the NAIL submission, in May 1994 a comprehensive set of submissions was presented to the Commission on behalf of 48 current or former Inntrepreneur lessees, including Mr Crehan and Mr Martin Bayliss. Mr Bayliss was another early litigant against Inntrepreneur and Courage (see Inntrepreneur Estates (CPC) Ltd and Courage Ltd v Bayliss (February 1994, reported at [1998] EuLR 483), and was a witness for Mr Crehan in this case. The submissions on behalf of Mr Crehan, Mr Bayliss and the others had been prepared by a legal team consisting of the barristers David Vaughan QC and Mark Brealey and the solicitors Messrs Charles Russell. That (with Mr Wonnacott) was still the legal team for Mr Crehan in the hearing before me. They attended a meeting with Mr Mensching and other representatives of the Commission on 12 July 1994, when they enlarged on the case which they had previously submitted in writing. Charles Russell wrote to the Commission on 3 August 1994 making a formal complaint against Inntrepreneur.[106]Inntrepreneur, through Herbert Smith, responded to the representations made on behalf of the tenants, but it became apparent that the Commission was no longer so sure that it should grant an individual exemption. In December 1994 the Commission wrote to Inntrepreneur, Grand Met and Courage, with a copy to Herbert Smith, effectively withdrawing the earlier sympathetic 19(3) notice. The focus of the Commission’s concern was the differential pricing system which operated in the United Kingdom for supplies of beers to pubs. The tied Inntrepreneur tenants had to purchase their supplies at Courage’s full list prices, whereas free houses could purchase them at large discounts. The Commission’s concern was that no proper competition was possible, nor did consumers benefit.[107]I ought to point out at this stage that, although the issue which was causing the Commission to have second thoughts was an issue which concerned competitiveness in one area of the pubs business (whether Inntrepreneur tenants were placed by the beer ties and the pricing system at a competitive disadvantage against competitor publicans who were free of tie), it was not at all the same competition issue as that on which the applicability or otherwise of article 81(1) depended. As explained in Delimitis, the competition which was relevant to article 81(1) was not competition between one publican and another. Rather it was competition between suppliers, actual or prospective, of beers to retail outlets in the United Kingdom on-trade market. The majority of such outlets were pubs. It follows that, although the subsequent events whereby for two or more years it remained unresolved whether Inntrepreneur would or would not obtain an individual exemption for its existing leases are a significant part of the background to the present case, they are not events which impact directly on the issues with which I am now concerned. The exchanges between Inntrepreneur and the Commission between the later part of 1994 and early 1997 were concerned with the issue of whether Inntrepreneur tenants, who were not getting discounts on their purchases of beer supplies, were or were not at a serious disadvantage against free of tie competitors. I do not have to decide whether the view which the Commission was inclined to take on that issue (that Inntrepreneur tenants were at a serious competitive disadvantage) was right or not.[108]Accordingly, I do not propose to trace the exchanges on that issue in any detail. The key events were as follows. In early 1995 the Commission requested the OFT to investigate whether the tied house system placed tied tenants, including Inntrepreneur tenants, at a competitive disadvantage. The OFT investigated between March and May 1995, and then produced a report, not all of which is in the public domain, which was on the whole favourable to Inntrepreneur. However, it appears that, despite the OFT report, the Commission was not convinced, because exchanges went on, with Inntrepreneur unsuccessfully trying a series of different arguments or proposals to persuade the Commission to grant an individual exemption.[109]On 29 November 1996 there was an important meeting between Inntrepreneur representatives (with Mr Fleck taking the leading role) and Messrs Mensching and Van Erps of the Commission. Mr Mensching repeated the Commission’s objections to the differential pricing system which the system of tied leases effectively put into place, to the disadvantage (as the Commission saw it) of Inntrepreneur tied tenants. It seems obvious to me that the Commission was close to a formal refusal of Inntrepreneur’s request for an individual exemption. Further, such a refusal would have been accompanied by a decision by the Commission that the system of Inntrepreneur leases was caught by article 81(1) and was not saved by the Block Exemption. Mr Mensching said that preparations were in hand for the issue of a ‘Statement of Objections’, which would have been a procedural precursor to the taking by the Commission of positive action under article 3 of Regulation 17 to require the dismantling of the tying system in the Inntrepreneur leases. That would have been a serious development for Inntrepreneur.[110]In Mr Fleck’s evidence he explained that, at that same meeting on 29 November 1996, he described the RetailLink system which Inntrepreneur was contemplating introducing. I have described the essence of that system at paragraph 54 above. It would involve the tenants still being tied and thus still being bound to purchase their supplies from Inntrepreneur’s nominated supplier (by then Scottish Courage), but Inntrepreneur would pay to them discounts at levels which were intended to remove the dissatisfaction which they were feeling over not being able to get discounts in the same way as free house publicans could. In evidence to me Mr Foster and Mr Fleck both explained that the RetailLink system was not devised as a way of getting out of the problems which Inntrepreneur was having with the Commission, but rather as a means of repairing the fractured relationship which Inntrepreneur had with a large part of its tenant body. Nevertheless the RetailLink proposal was seen as attractive by Mr Mensching and his colleagues. It was a possible way of resolving the impasse between the Commission and Inntrepreneur without the Commission having to take formal steps which could have prolonged the issue yet further and could even have involved legal proceedings in the Court of First Instance.[111]In the next two paragraphs I will follow through the account of what happened with the Commission as regards RetailLink and its successor, SupplyLine. After doing that I will need to return to what happened to the original notification from 1992 (of the Inntrepreneur leases and the beer tie arrangements as they were when Mr Crehan was in occupation of The Cock Inn and The Phoenix), and what happened to the formal complaints against that structure which had been made to the Commission by NAIL and by a number of Inntrepreneur tenants including Mr Crehan and Mr Bayliss.[112]After the meeting of 29 November 1996 Inntrepreneur, in subsequent meetings and correspondence, provided to the Commission further details of the RetailLink proposal. RetailLink was put into effect on 25 February 1997, operating retrospectively from 1 January 1997 and continuing until 28 March 1998. On 26 March 1997 Inntrepreneur formally notified the new system to the Commission (which of course knew about it already). In response to the formal notification the Commission was minded to grant an individual exemption. The exemption would be prospective only – that is for the time after the introduction of RetailLink. So it would not apply to earlier years such as those when Mr Crehan was in occupation at The Cock Inn and The Phoenix, and would be of no assistance to Inntrepreneur in its litigation with tenants like Mr Crehan. A number of draft 19(3) notices, anticipating the grant of an individual exemption for RetailLink, were sent to Herbert Smith. It will be recalled that by virtue of article 19(3) of Regulation 17 the publication of such a notice is a necessary preliminary before a formal decision granting an exemption can be made. A formal 19(3) notice was issued on 10 December 1997. By then matters had moved forward in other ways, as I will describe below. However, staying with the notice for the moment, the Commission stated that it intended to take a favourable position by granting an individual exemption. I think that, unless I have overlooked something, there never was a formal Commission decision to that effect, but a so-called Comfort Letter was issued by the Commission on 24 January 2000.[113]I add the following for completeness, although it does not in my view have any impact on the present case. It may be recalled from paragraph 57 above that Inntrepreneur was also proposing to introduce, and did introduce, the SupplyLine system with effect from 28 March 1998, to replace RetailLink. The SupplyLine system was also notified to the Commission, and eventually received a negative clearance, to the effect that article 81(1) did not apply to it at all. This was issued on 29 June 2000. The compatibility of the SupplyLine system with article 81 was also affirmed by the High Court in this country in Barrett v Inntrepreneur Pub Company (GL) Ltd (23 June 1999, unreported).[114]Having described how Inntrepreneur achieved results satisfactory to itself as respects the periods after 1 January 1997 (the RetailLink period) and 28 March 1998 (the SupplyLine period) I must go back and complete my description of what happened to the original notification to the Commission, made in 1992, of the leases and associated tying arrangements as they had operated in earlier years, including the years when Mr Crehan held the agreements for lease of The Cock Inn and The Phoenix. I have taken the account up to the point of the meeting on 29 November 1996, when Mr Mensching made it clear that Inntrepreneur was not going to obtain an individual exemption for the past and explained that a Statement of Objections was in the course of preparation, and when Inntrepreneur, represented by Mr Fleck, changed the future course of exchanges with the Commission by describing the RetailLink proposal.[115]Although Inntrepreneur and the Commission for a time thereafter concentrated primarily on the notifications of RetailLink and SupplyLine, the original 1992 notification was still in place. It will be recalled that, by that notification, Inntrepreneur and Courage were requesting, in logical order of preference,(1) negative clearance,(2) confirmation that the Block Exemption applied, or, failing (1) or (2),(3) an individual exemption. The view of Mr Mensching and his colleagues on (1) and (2) had always been adverse to Inntrepreneur, but no decision had been issued. Their view on (3) had originally been favourable to Inntrepreneur, but had changed over the years. It was not inevitable that final decisions by the Commission would be in line with the views of Mr Mensching and his colleagues, but it was probable that they would be. On 14 October 1997 Inntrepreneur and Courage wrote to the Commission formally withdrawing the 1992 notification. Subject to two qualifications it followed that there never would be a decision of the Commission upon whether article 81(1) applied to the beer ties in the Inntrepreneur leases (so far as concerned how the ties operated before RetailLink), or on whether, if article 81(1) did apply, the leases and the tying provisions were taken out of the sub-article by the Block Exemption. The two qualifications are: first, by a contemporaneous letter Inntrepreneur reserved the right to renotify the arrangements if the Commission did not issue favourable 19(3) notices as respects RetailLink and SupplyLine (in the event the Commission did issue favourable notices); second, the Commission still had before it the applications made on behalf of NAIL, and also on behalf of Mr Crehan, Mr Bayliss and other persons, under article 3 of Regulation 17 for the Commission to require the alleged infringements of article 81 to be brought to an end.[116]Counsel for Mr Crehan say I should infer that the reason why Inntrepreneur withdrew its notification was to avert an unfavourable decision from the Commission, which would have been very damaging to Inntrepreneur in its continuing litigation with Mr Crehan and many other former Inntrepreneur tenants. I accept that, if Inntrepreneur had pressed the notification to the point of a Commission decision, the decision would almost certainly have been adverse to Inntrepreneur. However, I also note Mr Fleck’s evidence that the suggestion that the notification should be withdrawn came originally from Mr Mensching. Looking at the matter from Mr Mensching’s point of view it would have appeared that, from the introduction of RetailLink with effect from 1 January 1997, the Commission had no further concern that the Inntrepreneur network of tied leases was thereafter in breach of Community law. Further, it would have appeared that the only significant effect which a decision of the Commission in 1997 about the pre-1997 arrangements would have would be upon the continuing litigation being pursued in the English courts against Inntrepreneur by Mr Crehan and other persons in a similar position to him. It is understandable that Mr Mensching would take the view that it was no longer important as a matter of Community law for the Commission to decide whether in earlier years the Inntrepreneur leases had been in breach of article 81(1), or whether they could have qualified for a block exemption.[117]As it seems to me this attitude on the part of the Commission comes through in how the Commission dealt with the application which had been made on behalf of Mr Crehan and others under article 3 of Regulation 17. On 24 November 1997, shortly after Inntrepreneur had withdrawn its 1992 notification, the Commission wrote to Charles Russell and others stating, in effect, that it did not propose to deal with the application. It said that the factual situation had changed once Inntrepreneur had withdrawn its notification. There was no longer ‘a Community interest for the Commission to deal with the case.’ The only remaining question with regard to the application of Community competition law to the ‘old’ lease was whether or not article 81(1) was applicable. That was a question which the national court was in a position to decide. On behalf of Inntrepreneur Mr Lewison has described this as the Commission rejecting the application. I think that that is an overstated way of putting it. If the application was rejected at all, rather than just not proceeded with, it was certainly not rejected on its merits. The merits could be decided by the national court, which means, in the events which have happened, by me.[118]I do not think that the documents disclose what happened to the article 3 application which NAIL had made in 1993. I imagine that it was dealt with by the Commission in the same way as was the application on behalf of Mr Crehan, Mr Bayliss and others. I am sure that it has not been proceeded with and decided by the Commission.[119]The foregoing completes my account of the protracted and somewhat tortuous exchanges between Inntrepreneur and the Commission. They began in 1992 and, so far as the present case is concerned, effectively came to an end in late 1997 without anything of substance having been achieved. The focus now moves from the Commission to what happened to Mr Crehan’s case. Factual strand 5: The stages through which Mr Crehan’s case has progressed[120]The origin of the present case goes back to 1993. The case has gone through many changes since then. It began on 9 June 1993 in the simple form of a claim by Courage against Mr Crehan for an unpaid debt for purchases of beer and other goods. The amount claimed was £15,266.[121]On 10 August 1993 Mr Crehan served a defence and counterclaim. He joined Inntrepreneur and Courage Group Ltd (the company now called Brewman Group Ltd) into the action as second and third defendants to the counterclaim. His solicitors were, and still are, Charles Russell, who have acted for many of the Inntrepreneur tenants in their disputes with the company. Mr Brealey drafted the defence and counterclaim (as he has also drafted all subsequent amendments to the defence and counterclaim). One of the allegations in the counterclaim was that the terms of the Inntrepreneur leases, and in particular the beer tie terms, were in breach of article 81. The infringement was said to be a breach of statutory duty owed to Mr Crehan jointly and severally by various companies, including Courage, Courage Group Ltd, and Inntrepreneur. Mr Crehan claimed damages, and also contended that he could set off the damages against any sums owed by him to Courage by way of unpaid beer prices.[122]On 1 October 1993 (three weeks after Mr Crehan gave up occupation of The Phoenix) Courage and Inntrepreneur served a reply and defence to counterclaim. I do not think that I have seen any evidence of a defence to counterclaim on the part of Courage Group Ltd, but I assume that there was one.[123]On 7 January 1994 Courage and Inntrepreneur issued a summons. Courage applied for summary judgment under Order 14 on its claim for unpaid beer invoices. Courage and Inntrepreneur applied under Order 14A for a determination of a question of law of whether Mr Crehan was entitled to counterclaim damages for breach of article 81. Neither of those applications ever appears to have come to a hearing. There was an inconsequential procedural hearing before Tuckey J in May 1994. There was also a hearing in October 1994 before Ognall J concerned with a rather obscure point about how a payment which Mr Crehan had made to Courage should be appropriated between various different debts or alleged debts owed by him. Then nothing happened in the case for three and a half years. The reason was that Inntrepreneur was actively pursuing the notification which it had made to the Commission in 1992, hoping to obtain at least an individual exemption under article 81(3). Mr Crehan’s solicitors, Charles Russell, knew about what was happening in Europe. An understanding appears to have been reached between them and Inntrepreneur’s then solicitors (Masons – Herbert Smith acted for Inntrepreneur on the exchanges with the Commission, but not on litigation with tenants) that it was inappropriate for the English court proceedings to be actively pursued while the matter was still being actively considered by the Commission. I interpose here that some letters between the solicitors show that they had reached some kind of agreement or understanding that, if and when the Community law issues raised by the tenants did go to trial in this country, Mr Crehan’s case would be suitable as a test or lead case to take first. His case was never formally stayed while the matter was being considered by the Commission (Mr Bayliss’s case, in contrast, was), but it was allowed to remain dormant for over three years.[124]On 7 October 1997 Mr Crehan revived the case by serving notice of an intention to proceed. This was required by the Rules of the Supreme Court in a case where no procedural steps had been taken for a considerable time. The notice was served a little before Inntrepreneur formally withdrew its 1992 notification to the Commission, but there had been correspondence with the Commission over the previous few months, and I imagine that Mr Crehan’s legal advisers knew that the proceedings before the Commission were going to come to an inconclusive end, so that the focus would switch back to the English courts.[125]On 20 March 1998 Master Moncaster made an order that certain questions should be determined as preliminary issues. At the risk of over-simplifying, the central issue underlying the formulated questions was whether, if the leases and the beer ties infringed article 81, Mr Crehan could have a private law claim for damages, and if so, against whom.[126]The case came before Carnwath J in November 1998; see Courage Ltd v Crehan [1999] EuLR 409. He held, following obiter dicta of the Court of Appeal in Gibbs Mew v Gemmell [1998] EuLR 588,(1) that article 81 was designed, not to protect the parties to an unlawful agreement themselves (i.e. in the present context not to protect tied tenants), but rather to protect the competitors of parties to an unlawful agreement (i.e. to protect other brewers who wished to enter the market or to expand their market shares); and(2) that in any case a party to an unlawful agreement could not claim damages from the other party for loss caused to himself by being a party to it. Carnwath J decided some other issues, also adversely to Mr Crehan. They are no longer material and I do not need to refer to them. He made an order giving Courage judgment for just over £15,000 (its claim for unpaid invoices) and dismissed Mr Crehan’s counterclaim for damages for breach of article 81. If the case had ended there Mr Crehan would have lost.[127]However, the case did not end there. Mr Crehan appealed to the Court of Appeal, where the appeal was heard together with a number of other cases some of which also involved Inntrepreneur. The most important point in the decision of the Court – at least the most important point so far as the present case is concerned – is that the Court referred to the CJEC the questions which I will reproduce in full in paragraph 129 below. At the heart of the questions referred was whether, if in this case there was a breach of article 81, a tied tenant such as Mr Crehan could have a claim for damages.[128]As well as referring questions to the CJEC, the Court of Appeal also decided some other issues there and then. On one of them it held that, even if Mr Crehan could have a claim to recover damages from Inntrepreneur, there was no basis on which he could set it off against the beer debt which he owed to Courage. Therefore Carnwath J’s order awarding damages to Courage stood. That issue was not referred to the CJEC, and it is in those circumstances that Courage (that is Courage Ltd, now called TIBSCO Ltd) is no longer a party to this case. Courage Group Ltd (now Brewman Group Ltd) is still a party, but it was never a claimant against Mr Crehan. The case continues only on what was originally Mr Crehan’s counterclaim for damages on the ground that the beer ties in the agreements for lease was contrary to article 81. The claim is principally against Inntrepreneur, but the original party to the agreement was Courage Group Ltd, and damages were claimed against that company as well as against Inntrepreneur. (Courage Group Ltd, soon after entering into the agreements for lease with Mr Crehan, assigned to Inntrepreneur the freeholds of the two pubs, subject to and with the benefit of the agreements.) It is for that reason that Brewman Group Ltd (the new name of Courage Group Ltd) is still a defendant to Mr Crehan’s claim.[129]The questions to the CJEC as formulated by the Court of Appeal were as follows:
"(1) Is article 81 EC to be interpreted as meaning that a party to a prohibited tied house agreement may rely on that article to seek relief from the courts from the other contracting party? (2) If the answer to question (1) is ‘yes’, is the party claiming relief entitled to recover damages alleged to arise as a result of his adherence to the clause in the agreement which is prohibited under article 81? (3) Should a rule of national law which provides that courts should not allow a person to plead and/or rely on his own illegal actions as a necessary step to recovery of damages be allowed as consistent with Community law? (4) If the answer to question 3 is that in some circumstances such a rule may be inconsistent with Community law, what circumstances should the national court take into consideration?"
[130]Those questions were the subject of an oral hearing by the CJEC in February 2001. The court delivered its judgment on 20 September 2001. It concluded that a party to a contract which infringes article 81 is in principle entitled to damages under Community law for any loss which the contract causes to him. As regards whether he could lose his right to damages after all on the ground that he is attempting to rely on his own illegality, the court held that rules of national law could permissibly have such an effect, but only if the claimant had significant responsibility for the distortion of competition. In that connection it was necessary to take into account the economic and legal context in which the parties found themselves, and their respective bargaining power and conduct. The court wrapped up together the four questions which had been posed by the Court of Appeal, and answered them as follows:
"A party to a contract liable to restrict or distort competition within the meaning of article [81] of the Treaty can rely on the breach of that article to obtain relief from the other contracting party. Article [81] of the Treaty precludes a rule of national law under which a party to a contract liable to restrict or distort competition within the meaning of that provision is barred from claiming damages for loss caused by performance of the contract on the sole ground that the claimant is a party to that contract. Community law does not preclude a rule of national law barring a party to a contract liable to restrict or distort competition from relying on his own unlawful actions to obtain damages where it is established that that party bears significant responsibility for the distortion of competition."
[131]The CJEC judgment was obviously a positive development in the case from Mr Crehan’s point of view, and he was in a better position after it than he was after the decision of Carnwath J. However, before I move on I comment that the judgment does not attempt to answer the question of whether the beer ties of which Mr Crehan made complaint were in breach of article 81. The questions referred by the Court of Appeal invited the CJEC to proceed on the assumption that the ‘tied house agreement’ which it was considering was prohibited. The CJEC proceeded on that hypothetical basis. Neither the form of the questions nor the answers which the court gave can be read as implying that tied house agreements are necessarily prohibited. They may or may not be, and all that the CJEC was deciding was that, if a particular tied house agreement was prohibited by article 81, the lessee might have a claim for damages; further, the lessee would not lose his claim for damages on the ground that he was himself a party to the agreement, unless he had a significant responsibility himself for the infringement of the article.[132]So the matter reverted to the English courts. In November 2001 the Court of Appeal refused an invitation by Inntrepreneur to direct the determination of another preliminary issue. Instead it directed that the case should proceed to trial. Pursuant to that direction it came before me in February and March of this year, 2003. The Commission’s 1999 decisions in the cases of Whitbread, Bass and Scottish & Newcastle[133]Although the Commission had no further involvement with the question of whether Inntrepreneur’s leases and associated beer ties infringed article 81, the Commission continued to be concerned with similar questions which arose under notifications by three other major landlords of pubs in the United Kingdom: Whitbread, Bass and Scottish & Newcastle. They had notified their forms of leases to the Commission, seeking (as had Inntrepreneur) either negative clearance or confirmation that the Block Exemption applied or individual exemption. Their notifications all proceeded to the stage of formal Commission decisions, whereas Inntrepreneur’s did not (because Inntrepreneur withdrew its notification). In all three cases the Commission granted individual exemptions to the companies, whereas in Inntrepreneur’s case all the indications had been that the Commission would not have granted an individual exemption. In the cases of Whitbread, Bass and Scottish & Newcastle the Commission concluded that the tied tenants received sufficient countervailing advantages to make up for the disadvantage of having to pay higher prices than their free of tie competitors. That seems to have been the difference between those three cases on the one hand and Inntrepreneur on the other: the Commission in its earlier exchanges with Inntrepreneur had been unpersuaded that Inntrepreneur tenants received sufficient countervailing advantages.[134]However, for the present case the importance of the Commission’s decisions in Whitbread, Bass and Scottish & Newcastle lies not in what was said in justification of the grant of individual exemptions, but in the discussions of the companies’ requests for negative clearance or for confirmation that the Block Exemption applied. In all three cases the Commission decided, first, that negative clearance could not be granted, and, second, that the Block Exemption did not apply. Negative clearance was refused because, in the Commission’s view, the conditions in the United Kingdom market for beer distribution to the on-trade in the first part of the 1990s came out on the wrong side of the criteria laid down by the CJEC in Delimitis. The issues which went to that matter are essentially the same as those going to the argument which Inntrepreneur now puts to me. Inntrepreneur argues that article 81 was not infringed by the tied networks, including the Inntrepreneur tied network, which existed in the United Kingdom when Mr Crehan had his agreements for leases of The Cock Inn and The Phoenix. Whitbread, Bass and Scottish & Newcastle put forward the same argument, and the Commission rejected it. As regards the Block Exemption, in relation to Whitbread, Bass and Scottish & Newcastle the Commission decided that the exemption did not apply on legal grounds which, if I adopt and follow them, will decide against Inntrepreneur the equivalent argument in its case before me.[135]All three Commission decisions were issued in 1999. In form they are three separate decisions, not one decision dealing with three separate notifications. But on the matters which are important for Mr Crehan’s case there is no difference between them, and they are expressed in virtually the same terms. In the oral argument counsel concentrated on Whitbread. In this judgment I will do the same. What I say would be the same if I cited the decisions in the other two cases. The Whitbread decision is set out in the Official Journal of the European Communities at 1999 OJ L 88/26.[136]On behalf of Mr Crehan Mr Vaughan and Mr Brealey rely strongly on the decision. On behalf of Inntrepreneur Mr Lewison and his fellow-counsel accept that I can properly take account of it. They submit, however, that on the two issues of negative clearance and the Block Exemption the Whitbread decision was wrong. They also point out that the Commission’s functions are regulatory and administrative rather than judicial (Hasselblad v Orbinson [1985] QB 475 at 497), and that I should not regard the Commission’s decision as analogous to a judicial authority which is binding or persuasive upon me as a matter of law. I will keep that warning in mind when I come to consider aspects of the decision and the questions which it addresses. At this point I will merely quote the terms in which it states the Commission’s conclusions on the three issues which are relevant to this case, namely Delimitis condition 1, Delimitis condition 2, and the Block Exemption. ◦ Delimitis condition 1. I described this in paragraph 8 above. The condition is satisfied if it is difficult for competitors who could enter the market or increase their market shares to gain access to the national market for the distribution of beer in premises for the sale and consumption of drinks. In Whitbread the Commission stated its conclusion on how that condition applied to the United Kingdom market in the following terms:
"It can thus be concluded that an examination of all tying agreements, including but not limited to beer-supply agreements entered into, and the other factors relevant to the economic and legal context of the UK on-trade market shows that the brewers’ tying agreements had in 1990 and still have today, on the basis of the most recent available information, the cumulative effect of considerably hindering independent access to that market, for new national and foreign competitors." [Decision paragraph (or ‘recital’) 127] ◦ Delimitis condition 2: In paragraph 7 above I paraphrased this condition as follows. Where the difficulty in entering the market results from parallel networks of similar agreements, the condition is satisfied if the particular network to which the impugned lease belongs makes a significant contribution to the sealing-off effect brought about by the totality of the agreements in their economic and legal context. In Whitbread the Commission concludes as follows: "
It is therefore concluded that Whitbread’s tied sales, of which the notified agreements are a part, contribute significantly to the foreclosure of the UK on-trade market. The exclusive purchasing obligation and the non-competition obligation in the leases therefore have a restrictive effect on competition." [Decision paragraph 138] Since the Inntrepreneur tied estate was slightly larger than the Whitbread tied estate, it can, I think, realistically be assumed that the Commission would have come to the same conclusion as regards the Inntrepreneur tied estate. ◦ On the Block Exemption, the Commission concluded that it did not apply. The reason, the relevance of which I will explain later when I consider the arguments in this case about the Block Exemption, was that the beer tie was a tie by type rather than a tie by brand. Factors on which Mr Crehan cannot rely to establish liability under his present claim[137]At last I can move from the factual and legal background and begin to analyse the particular issues which arise on Mr Crehan’s present claim for damages against Inntrepreneur and Brewman Group Ltd. I begin by identifying several arguments which do not assist Mr Crehan in this claim. They are complaints, whether justified or not, which he makes against Inntrepreneur, and the evidence which I heard from other disaffected Inntrepreneur publicans shows that they are complaints shared by many other past or present Inntrepreneur lessees. Nevertheless, even if they are justified complaints, they do not lead to the conclusion that Inntrepreneur is liable in damages to Mr Crehan on the particular basis which the CJEC, on the reference to it in this case, explained. They may or may not support a different claim for damages, but they do not support the present claim which is before me. They are complaints which might conceivably affect the quantum of any damages which Mr Crehan might recover in this case, but they do not affect the logically prior question of whether Inntrepreneur is liable to him at all on the basis of the claim now advanced.[138]The first factor or complaint which I identify in this connection is that the rents which Mr Crehan was required to pay for his two pubs were too high. It appears from the expert valuation evidence that this grievance of Mr Crehan is justified. To take The Cock Inn first, the rent payable by Mr Crehan under the agreement for lease into which he entered in July 1991 was £35,000 a year. That was his actual rent, and it was for a tied lease. The valuers were agreed that market rents for tied leases were in principle lower than market rents for free of tie leases. Mr Butters (Inntrepreneur’s expert valuer) assessed the free of tie rent for The Cock Inn at £35,500. Mr Day (Mr Crehan’s expert valuer) assessed it at £33,500. So according to the valuers’ estimates, which do not seem to me to differ substantially between themselves, Mr Crehan was effectively paying a free of tie rent for a tied lease. Mr Butters’ tied rental valuation was £28,500. I may have overlooked something, but on a brief re-reading of Mr Day’s two reports I have not picked out his equivalent figure. It can safely be assumed that it would have been quite close to Mr Butters’s figure, but a little lower.[139]Later rents for The Cock Inn reinforce the conclusion that Mr Crehan’s rent was above a market rent for a tied lease. After his business failed and he surrendered his agreement for lease the pub was let to another tenant on a tied Inntrepreneur lease. Mr Day’s enquiries have elicited that the rent was £28,000. (Compare the rent charged to Mr Crehan: £35,000.) The tenant failed and surrendered his lease in 1996. Bankruptcy followed. After that the pub was let to a company at £26,000 a year. The rent was reviewed in 2001, and the current rent is understood to be only £31,000 a year even now, twelve years later than when Mr Crehan commenced occupation.[140]The figures for The Phoenix give a similar impression. Mr Crehan’s actual tied rent was £36,000 a year. Mr Butters’ expert valuation for a free of tie market rent was £36,500, and Mr Day’s was £36,000. Mr Butters’ figure for a tied rent was £30,000. Further lettings of The Phoenix after Mr Crehan left do not seem to have been comparable to the Inntrepreneur lease for which the agreement with him provided. The Phoenix is now owned by another brewery and is a managed house.[141]Thus if it mattered I would be prepared to accept that, despite Mr Williams’ policy that pubs should not be over-rented, the particular rents which Mr Crehan agreed to pay for The Cock Inn and The Phoenix were significantly above the market level. That is a grievance, but it is not a grievance which shows that the beer ties in the leases of the two pubs were in breach of article 81. As to this see the decision of the Court of Appeal in Inntrepreneur Estates (GL) Ltd v Boyes [1993] 2 EGLR 112 at 116.[142]I would like to add here that, although it does seem that Mr Crehan was particularly unfortunate in the level of rent which Inntrepreneur demanded from him, I do not draw a conclusion that Inntrepreneur set out systematically and deliberately to exact unreasonably high rents from its tenants. I do think it possible that the levels of rents which in the early years Inntrepreneur considered to be realistic tended in too many cases to be excessively high, and I accept that there have been quite a lot of Inntrepreneur tenants, including Mr Crehan and some of the other tenants who gave evidence before me, who suffered from this. But I do not accept the thesis that Inntrepreneur conducted itself with, so to speak, malice aforethought in its rental policy. In Mr Crehan’s particular case it is worth noting that, when he was asked to supply to Mr Ebdon a business plan for The Phoenix showing the profit (before rent) which he expected to make, the figure which he gave (assisted by advice from an experienced stocktaker to whom he had been introduced by a publican friend) was about £66,000. In the hearing the experts agreed that a common method of arriving at rents for pubs was to pitch them at about 50% of the anticipated pre-rent profit. So on the basis of the figure which Mr Crehan himself supplied to Mr Ebdon a rent of £36,000 a year for The Phoenix would have seemed a little on the high side, but not dramatically so.[143]A second complaint which Mr Crehan may feel that he has against Inntrepreneur, but which does not assist him to establish what he needs in order to show that Inntrepreneur is liable to him for breach of article 81, is the generalised grievance (of which the high rental level is one part) that he made a bad bargain. It seems fairly obvious from what happened to him that he did indeed make a bad bargain. He believes that the responsibility for it lies with Inntrepreneur rather than with himself. I am not going to be drawn into ascribing blame, because, even if Inntrepreneur could be criticised for oppressively imposing onerous terms on Mr Crehan, that would not make any difference to the issue in this case. Mr Crehan may or may not have had other routes to legal redress available to him based on the contention that a bad bargain was inflicted on him, but in this case the legal route to redress which he is seeking to take is the argument that the beer ties in Inntrepreneur leases were in breach of article 81. The correctness or otherwise of that argument is not affected at all by whether the bargain was a bad one, and, if it was, by whose fault that was. In Chemidus Wavin Ltd v Societé pour la Transformation [1977] FSPLR 181 at 187-8 Buckley LJ agreed with the following passage from the judgment of Walton J:
"What he is really complaining about is that he has made a bad bargain and, according to him, a thoroughly bad bargain, but I do not think that article [81] is intended in any way to mend any man’s bargains. What it is intended to do is to interfere with distortions of trade. If somebody chooses to pay over the odds for some particular item, then I do not think that article [81] will save him."
[144]A third point of a similar nature – a complaint, and possibly a justified grievance – but not one which helps Mr Crehan on the arguments which he needs to establish if he is to succeed in this case, is one which I have already touched on at an earlier point: see paragraph 107 above. Article 81 is about distortions of competition, but it is not about the particular kind of distortion which Mr Crehan says affected him personally. Mr Crehan says that the beer tie distorted competition between himself and other pubs which were free of tie, especially the Angel. It may have done that, but the distortion which Mr Crehan needs to show as the first stage in his claim for damages under article 81 is distortion at a different place in the market altogether. He needs to show that the beer ties, taken together with other networks which also contained tying provisions, distorted competition between, on the one hand, aspiring entrants into the market for distributing beer to on-trade outlets and, on the other hand, incumbents already established in that market. Of course, if he can establish the initial proposition that the beer tie was illegal by reason of article 81, the case moves to the next stage: did the illegality cause the loss for which Mr Crehan seeks redress? At that point the problems which the beer tie gave him in competing with The Angel become relevant, but the point which I make now is that the beer ties cannot be argued to have been contrary to article 81 because they distorted local competition between pubs in the same locality. The argument that the beer ties were contrary to the article has to be based on a different distortion of competition altogether. Is Inntrepreneur’s Delimitis argument an abuse of process?[145]An important part of Inntrepreneur’s case is that the beer ties were never in breach of article 81(1) at all, notwithstanding the view which was clearly entertained by Mr Mensching and his colleagues at the Commission that they were. Similarly, Inntrepreneur contends that the beer ties in its leases, if otherwise caught by article 81(1), were taken out of the sub-article by the Block Exemption, again notwithstanding the view to the contrary held by Mr Mensching and his colleagues. Inntrepreneur wishes to persuade me that Mr Mensching and his colleagues were wrong on both of those points, and that I should so conclude in this judgment. Mr Vaughan and Mr Brealey submit that it is an abuse of process for Inntrepreneur to raise these arguments: Inntrepreneur, having refrained from arguing the issues out with the Commission, ought not to be allowed to argue them in this court. I do not agree.[146]I can understand that Mr Crehan and his professional advisers feel disenchanted by the way in which Inntrepreneur caused their counterclaim to be held up for years while Inntrepreneur pursued a European route to get rid of it; then, when it seemed clear that the European proceedings were not going to get rid of the counterclaim, but rather were heading towards a decision adverse to Inntrepreneur, Inntrepreneur and Courage withdrew the notification; Inntrepreneur now wishes to renew all the same arguments in the English courts. However, I cannot see an abuse such as to shut out Inntrepreneur from advancing the arguments to me. There are several different points which I make in support of that view. ◦ Inntrepreneur rightly points out that it has never had a definitive decision on the arguments which it puts before me. ◦ It says, justifiably as it seems to me, that the Commission, represented by Mr Mensching and others, was never prepared to engage in reasoned debate on those arguments, so that Inntrepreneur never had a satisfactory opportunity to argue its case to the Commission. The only arguments which Mr Mensching was prepared to listen to were arguments that Inntrepreneur ought to receive an individual exemption. ◦ Inntrepreneur also points out, again correctly, that, if the Commission had proceeded to an adverse formal decision, Inntrepreneur could have appealed to the Court of First Instance. Mr Lewison says that Inntrepreneur would have appealed in that situation, and I have little doubt that he is correct. So a decision by the Commission would not have been the last word, and Inntrepreneur would have been entitled to a judicial decision upon the contested issues. A decision against Inntrepreneur by the Commission would not have been a judicial decision. ◦ Further, I believe that, if there had been an appeal to the Court of First Instance, Inntrepreneur would not have limited its arguments to arguments that the Commission ought to have granted an individual exemption to it (as the Commission later did to Whitbread, Bass and Scottish & Newcastle). Inntrepreneur would have argued in the Court of First Instance, presenting full evidence in support of the arguments, that the beer ties were not caught by article 81(1) in the first place (i.e. that the Commission ought to have given a negative clearance), and in the alternative that the Block Exemption applied. ◦ At the heart of Mr Vaughan’s and Mr Brealey’s abuse of process submission is the belief that Inntrepreneur chose for tactical reasons to withdraw its 1992 notification when it became clear to it that the Commission was going to issue a decision against it. However, I refer to the point I made at paragraph 116 above that the suggestion that Inntrepreneur should withdraw its notification was first made by Mr Mensching. I can accept that the suggestion was a welcome one to Inntrepreneur, but the evidence before me is that the original initiative came from Mr Mensching, not from Inntrepreneur. ◦ What the Commission did in relation to the complaint against Inntrepreneur (made under article 3 of Regulation 17) by Mr Crehan, Mr Bayliss and others, suggests to me that the Commission was not dissatisfied with Inntrepreneur’s action in withdrawing its notification. If the Commission had been set on giving a formal decision against Inntrepreneur and had felt that the withdrawal of the notification was a piece of unattractive sharp practice, the Commission could still have given a decision against Inntrepreneur. It could have done that, not in the form of a decision on Inntrepreneur’s notification, but in the form of a decision on the article 3 complaint by Mr Crehan, Mr Bayliss and the others. ◦ Going back to the protracted exchanges between Inntrepreneur and the Commission from 1992 onwards, Mr Fleck’s evidence establishes, first, that Inntrepreneur never conceded that Mr Mensching and his colleagues were right about article 81(1) (the negative clearance issue) and the Block Exemption, and, second, that the Commission officials always knew that Inntrepreneur’s position was that it was entitled to a negative clearance or to the benefit of the Block Exemption. Mr Fleck was careful not to spell those points out in ways which would have antagonised Mr Mensching, but Mr Mensching knew that Inntrepreneur was throughout reserving its rights on the article 81(1) issue and on the Block Exemption. ◦ When Inntrepreneur wrote to the Commission on 14 October 1997 withdrawing its 1992 notification (which related to the arrangements as they stood before RetailLink and SupplyLine), it also wrote that it reserved the right to renotify the arrangements if the Commission did not issue 19(3) notices which foreshadowed formal decisions upholding the modified arrangements after RetailLink and SupplyLine. ◦ In the annexes to all of the letters which the Commission wrote to Charles Russell and others on 24 November 1997 informing them that the Commission did not intend to proceed with the applications complaining against Inntrepreneur under article 3 of Regulation 17, the Commission expressly stated that the question of whether the pre-1997 leases came within article 81(1) of the EC Treaty was ‘a question which the national court is in a position to decide’. The annexes do not make the same point in relation to the Block Exemption, but plainly the same reasoning is applicable.[147]In all of those circumstances I cannot accept that it is an abuse of process for Inntrepreneur to argue these issues before me. I add that some authorities were referred to in connection with this argument, but none of them was exactly in point, and, while I appreciate the efforts which counsel applied in searching for authorities about analogous situations, I did not in the end derive any assistance from them. Delimitis condition 1[148]I now begin a particularly important part of my judgment, because it is the part in which I explain my principal reason for concluding that Mr Crehan’s claim for damages cannot succeed.[149]An essential element in Mr Crehan’s case is that the beer ties which applied to him when he was at The Cock Inn and The Phoenix were infringements of article 81. Delimitis shows that, for that to be the case, both of the two Delimitis conditions had to be satisfied. If either condition was not satisfied Mr Crehan’s claim fails. In this section of my judgment I consider the first condition. In the answers which the CJEC gave to the questions referred to it by the Frankfurt court the condition was expressed in this way:
"A beer supply agreement is prohibited by article [81](1) of the EEC Treaty if two cumulative conditions are met. 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 answer then goes on to describe the second cumulative condition, to which I will come later.[150]There are a few propositions which I believe are substantially non-controversial, and which I can usefully make at this stage. One is that the concept which the CJEC referred to in the foregoing passage has sometimes been referred to by the word ‘foreclosure’. The Commission used that term in Whitbread; it featured regularly in the hearing before me; and I will use it myself. A market is foreclosed if would-be entrants cannot get into it. The word used in an unqualified sense might be thought to convey the notion of a market being shut off completely from all persons who are not already incumbents within it. However the CJEC plainly did not intend Delimitis condition 1 to be as absolute as that. The court did not itself use the words ‘foreclosure’ or ‘foreclosed’. Rather it spoke in terms of it being ‘difficult’ for a newcomer to enter the market or for an existing incumbent to increase its market share. That is the concept which I will have to examine and endeavour to apply in reaching a decision in this case.[151]Another non-controversial point is that the ‘market’ which has to be considered in order to determine whether it is difficult to enter it or to expand an existing share within it is not the market for the retail sale of beer to consumers. That was the market in which Mr Crehan operated as a supplier. The market contemplated by Delimitis condition 1 is the market one stage before that: the market for the supply and distribution of beer to persons like Mr Crehan. More precisely, given the structure of United Kingdom law for licensed premises, it is the market for the supply of beer to on-licensed premises, that is to say all premises where the customers drink the beer on the premises. The most numerous premises of that sort, and the premises which have the largest volume of throughput of beer, are pubs. But clubs and licensed restaurants would also be outlets contemplated by Delimitis condition 1. A further non-controversial point is that the geographical market is the whole of the United Kingdom. I do not understand this to mean that condition 1 would be satisfied unless an entrant could, without finding it ‘difficult’, quickly get itself established in the market throughout the whole of the United Kingdom. If an entrant could get itself established to a reasonable size in a not insubstantial part of the country, perhaps with prospects of further geographical expansion as time passes, I believe that that would be sufficient to mean that condition 1 did not apply. If would-be entrants, which have or can acquire a beer product which they want to be able to distribute to on-trade outlets (like pubs) in some part of the United Kingdom, can do that without it being ‘difficult’ in the sense of Delimitis, I believe that that should be sufficient to prevent the Delimitis conditions being satisfied.[152]I wish to comment on the reference by the CJEC, not just to competitors who could ‘enter the market’, but also to competitors who could ‘increase their market share’. Counsel for Inntrepreneur criticised the case put on behalf of Mr Crehan, and also criticised the expert evidence of Dr Veljanovski, because they concentrated on new entrants into the market, and in particular on non-United Kingdom brewers which wished to get their beer distributed in the United Kingdom market. The NERA report (the expert report tendered on behalf of Inntrepreneur) said that, even if it was difficult for a newcomer to get into the United Kingdom market, nevertheless the existence of vigorous competition between the established incumbents in the market was satisfactory from the point of view ensuring that consumers obtained the benefits which competition brings. The inference behind the argument is that a real (non-‘difficult’) possibility of competition between existing incumbents is sufficient to mean that Delimitis condition 1 is not present.[153]Although I agree with Inntrepreneur’s ultimate conclusion on Delimitis condition 1, I do not agree with this particular point in support of the conclusion. It is true that, in the CJEC’s reply to the Frankfurt court which I have quoted above, and also in one paragraph of the judgment (paragraph 15), the CJEC does refer to increasing an existing market share as well as to gaining access to the market. But I agree with Dr Veljanovski, who said in his oral evidence that the substantial focus of the discussion in the judgment is on access to the market by a new entrant. The words ‘access to the market’ recur frequently. The court is contemplating a person, typically in my view a brewer, which is not established in the United Kingdom market but wishes to obtain access to it. Paragraph 21 refers to a ‘new competitor’. That paragraph and paragraph 22 refer to ‘penetrating’ a bundle of contracts (paragraph 21) or a saturated market (paragraph 22). Paragraph 23 refers to a case where the agreements do not have the effect of denying access to the market to new national and foreign competitors. (Note the word ‘new’.)[154]In this connection it is also necessary to remember that agreements, even anti-competitive agreements, can only be prohibited by article 81(1) if they ‘may affect trade between Member States’. It seems to me that, while of course article 81 has the interests of consumers in mind, a more specific target which it seeks to attack is agreements or networks of agreements between persons based in Member State A which prevent or restrict the ability of an aspiring competitor in Member State B from getting into the Member State A market. If in relation to some product (beer being one possibility) there is vigorous competition between several United Kingdom operators in the market, but the agreements which they all have with retail outlets have the effect that there is very little of the market left for a business in another Member State to get into, article 81 would be likely to apply. The domestic incumbents could not say:
‘It is true that we have got the market so sewn up between us that a foreign competitor would find it difficult to get into it, but that ought not to matter because we are in fierce competition between ourselves all the time.’
When counsel for Mr Crehan, and also Dr Veljanovski in his expert evidence, concentrate on whether an aspiring foreign entrant, typically a non-United Kingdom brewer, would be able to get into the United Kingdom market for supplies to on-trade outlets, or on the contrary would find that market significantly foreclosed by the tying networks of the established domestic incumbents, I believe that they have identified the single most important issue on which this part of the present case depends.[155]There is one other general point which I would like to make about Delimitis condition 1 before I move on to evaluate the major contentious issues which arise. When the CJEC refers to it being difficult to enter the relevant market, the Court is only concerned with cases where the difficulty arises from beer ties or from agreements which have a similar effect to beer ties. It is easy to imagine a case where a non-United Kingdom brewer decides not try to get into the United Kingdom market because it would be too difficult, but where the anticipated difficulty has nothing to do with the existence of beer tie networks in this country. Suppose that the brewer is examining a project to import large quantities of beer in draught form, but decides to abandon the idea on logistical grounds: it would be too far, too difficult, and too expensive to set up the transportation and processing arrangements which would be required. (This is quite a realistic example, according to some of the evidence which I received. I think that virtually all foreign brewers which have tried to get their product into the United Kingdom market in substantial volumes have taken the decision that, by one means or another, they will have to brew it, or get it brewed by someone else, in this country.) A decision not to attempt to get into the United Kingdom market because of a difficulty of that nature is irrelevant to the applicability or otherwise of article 81. A difficulty over getting access to the United Kingdom market is only relevant if it would arise from the matters which are prohibited by article 81(1): so far as this case is concerned from ‘agreements between undertakings … 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.’[156]So in this case was it difficult, because of beer ties and similar agreements, for aspiring entrants to gain access to the relevant United Kingdom market? Mr Vaughan and Mr Brealey have presented several different arguments on the basis of which they say that I should answer the question: yes. I think that logically their first argument is that in Whitbread the Commission decided that the answer was yes, and that that ought to be good enough to determine the issue for me. They point out that the Commission has had much experience of matters involving the United Kingdom pub and beer markets. It has a staff of skilled economists. It has itself investigated aspects of the market from time to time over the years. It has a special understanding of the concepts which underlie the competition principles of Community law, including in particular article 81. Mr Vaughan and Mr Brealey say that I should not take on the task of deciding for myself whether I share the view of the Commission. I should simply say that the body best qualified to decide the question has decided it, and I should not second guess that body. I should adopt the findings which the Commission made in Whitbread and proceed with the rest of the case on the footing that Delimitis condition 1 is satisfied.[157]There are obvious attractions in the course which Mr Vaughan and Mr Brealey urge me to take, and I have thought very carefully about taking it. However, I have decided that I ought not to take it. Inntrepreneur was not a party to the proceedings which resulted in the decisions in Whitbread and the other two cases, and it had no input into the materials which the Commission considered. Even now it has only an incomplete knowledge of what evidence and arguments the Commission had before it. I am in the same state. Counsel for Inntrepreneur and the expert NERA report (to which Professor Yarrow spoke by way of oral evidence) subjected the Whitbread decision to lengthy and rigorous criticism. I will refer to some of the specific criticisms from time to time as this judgment progresses. Dr Veljanovski, as it appeared to me, was not able, when some of the criticisms were put to him, to justify some of the passages in the decision which were attacked. His general line was that the Commission was an experienced organisation with a highly qualified and expert staff. Even if faults could be found in some of the specific things which the Commission had said in the decision, its staff had researched the matters, and it should not be supposed that the actual decision to which it came was wrong. For example on one particular issue (concerned with a foreign brewer getting access to the United Kingdom market by licensing a different United Kingdom brewer to produce its product) it was put to Dr Veljanovlski that in his reports he had not endeavoured to give his own answer to the underlying question, other than in an abstract manner; in general he had limited himself to pointing out what the Commission had said about the question. He accepted the point: "That is right. One of the features of this case is this all happened some time ago and the amount of primary information is a bit scarce on the ground. What I am relying on, and I think some of the thrust of your questioning, is the EC Commission investigated these contractual terms in a lot of detail and received evidence from various parties, and have come to the conclusion that they do have restrictive effect." [Transcript Day 22 p.43] On another point Dr Veljanovski accepted that it was fair to say that he simply said: ‘Well, the Commission must have investigated’. [Day 22 p.91][158]I understand Dr Veljanovski’s difficulty. As he pointed out (Day 22 p.81), it had not been possible for him to do independent empirical research, and he was ‘relying on secondary information and views of regulators or differences of interpretation of the same pieces of evidence.’ However, it remains the case that, when Mr Green or NERA point out some apparent error in Whitbread which Dr Veljanovski cannot defend, or some respect in which one paragraph (or ‘recital’) in the decision is inconsistent with another paragraph (and there are instances of this, for example paragraphs 33 and 121), I have difficulty in going along with the submission of Mr Vaughan and Mr Brealey that I should simply accept the conclusions of the Commission in Whitbread and not attempt to form my own view. After all, Dr Veljanovski has been involved in many matters involving the Commission, and he readily accepted that it was not his view that the Commission was always right.[159]On the question of whether I should form my own view about whether the United Kingdom market was foreclosed in the sense of Delimitis condition 1, I am influenced by two other considerations. The first is that, while I could not possibly embark on a detailed research investigation myself, and to do so would be inconsistent with the role of a judge in civil litigation in this jurisdiction, I did receive a large body of evidence on the basis of which I feel that I do have enough materials to come to a conclusion. The second is that, in the annex to the Commission’s letter of 24 November 1997 stating that it was not itself going to proceed on the complaints previously made to it by Mr Crehan, Mr Bayliss and others, the Commission specifically stated that the question of whether article 81(1) applied could be decided by the national court. It was plainly the Commission’s opinion and expectation that the question not merely could, but also would, be decided by the national court. In those circumstances I am not going to step back from deciding it on the ground that the Commission has in the meantime stated conclusions of its own in its decisions in Whitbread and the other two cases.[160]In this latter connection it is not without significance that, although the actual decision of the Commission in Whitbread was delivered on 24 February 1999, the Commission had on 27 September 1997 issued a 19(3) notice which stated an intention to grant to Whitbread an individual exemption. The grant of an individual exemption would mean that, in the Commission’s view, article 81(1) did apply: if the sub-article did not apply, Whitbread would not need an individual exemption. So in September 1997, and in the context of Whitbread, the Commission had formed the view that article 81(1) applied and that Delimitis condition 1 was satisfied. That did not deflect the Commission (the same section of the Commission, and in all probability the same officials) from saying some two months later that, as between Inntrepreneur and its litigating tenants, the English court could determine whether article 81(1) applied. In the circumstances I am reinforced in my view that I should make my own mind up on the question, and should not just adopt unquestioningly the opinion of the Commission set out in the Whitbread decision.[161]I do therefore proceed to examine the question, considering the arguments on the merits of it which were presented to me and the evidence which bears upon it.[162]The specific date as at which it is necessary to determine whether the United Kingdom market for the distribution of beer to on-licensed outlets was sufficiently foreclosed for Delimitis condition 1 to be satisfied is 11 July 1991, the date when Mr Crehan became bound by the beer ties the legality of which under article 81 is in question. However, the arguments and evidence ranged over a substantial tract of time extending for some years after 1991, and in my view rightly did so. In July 1991 the Beer Orders had been in force for less than two years. They were intended substantially to reduce the degree of foreclosure which had existed in the industry before the MMC Report of 1999. No-one supposed that the moment the Beer Orders were enacted, there would be an immediate and complete freeing up of the market: the Orders would take time before their full effects would come through. They had already made some important differences by July 1991, as I will show from time to time over the following paragraphs, but there were plainly going to be more effects to come. The Orders were intended dramatically to reduce the degree of foreclosure which the market had previously exhibited, but the reduction would be a process which took time, not a single instantaneous event. In determining to what extent the relevant market could be regarded as foreclosed in July 1991 it is entirely proper to take account, not just of what had already happened, but also of what was expected to happen as the process continued. I also think that it is proper to look back now with hindsight and draw on the experience of the intervening dozen years. That is to say Inntrepreneur can justifiably say something like this:
‘Informed observers of the United Kingdom beer market in the middle of 1991 could see that the old structure, with its significant degree of vertical integration between producers (brewers) and retail outlets (mostly pubs), was, under the influence of the Beer Orders, breaking up, and they could confidently predict that the process was going to continue. Moreover, we can see now that they were right by looking at how the trends which were already apparent and predictable at that time continued over subsequent years.’
I add that to look a few years ahead (but not many) rather than to look exclusively at how matters stood on the precise date when Mr Crehan exchanged contracts with Inntrepreneur seems to me to be in accordance with the decision of the CJEC in the Neste case, which I briefly describe in paragraph 179 below.[163]Mr Crehan’s case that it was difficult for competitors to gain access to the market or to increase their market shares rested substantially on the Commission’s analysis in Whitbread and on relevant passages from the many official reports and inquiries which there have been about aspects of the pubs and brewing businesses in the United Kingdom. As well as the argument based on Whitbread that I should simply accept the Commission’s judgment because it was the Commission which reached it, a different argument was that I should study the material relied on by the Commission in the decision, and be persuaded by it to come to the same conclusion. As regards reports and inquiries, in Dr Veljanovski’s two reports he efficiently and helpfully assembled and presented the relevant extracts from the numerous documents which he had studied. He commented in cross-examination: "I am the first to admit that I have not done independent empirical research because it just has not been possible, and we all are relying on secondary information and views of regulators or differences of interpretation of the same pieces of evidence." [Day 22 p.81][164]With reference to the case presented on behalf of Mr Crehan that beer ties and similar arrangements made it difficult for aspiring entrants, typically overseas brewers, to gain access to the United Kingdom market, counsel for Inntrepreneur pointed out that no evidence was called from any foreign brewer who had considered entering the United Kingdom market, but had decided not to make the attempt because it thought that the market was excessively foreclosed by beer ties and similar agreements. Further, there was no evidence from a foreign brewer which had made the attempt to get into the market, but had failed and blamed the failure on the degree of foreclosure which the market allegedly exhibited.[165]Dr Veljanovski drew attention to the January 2001 report of an inquiry by the Competition Commission (the successor of the MMC ), in which Anheuser Busch is reported as having complained that it had difficulty in getting a satisfactory share of the United Kingdom on-trade market. Anheuser Busch is the American group which brews Budweiser. It is the largest brewing group in the world (although its position in that respect is to some extent attributable to its enormous sales in its domestic market). In 1995 it established its own brewing operation in this country by leasing the former Watneys brewery beside the Thames at Mortlake. It said to the Competition Commission that it had done well in the off-trade market, but not so well in the on-trade market. However, no-one from Anheuser Busch gave evidence before me. I do not disregard what it told the Commission, but I have reservations about it. Mr Dinesen, the Chairman of Carlsberg in this country, who did give evidence and was cross-examined, said that in his opinion Anheuser Busch’s complaint did not reflect reality (Day 17 p.52). Mr Spicer, the expert investment analyst, said that, when he saw what Anheuser Busch had said, he was surprised: Anheuser Busch holds one-third of the United Kingdom on-trade market for premium packaged lager, the slot in the market to which its bottled Budweiser product belongs. That is a very large market share, and I do not need evidence to know that Budweiser is a thoroughly well established product in this country. Mr Spicer thought that the share of the on-trade market which Anheuser Busch had achieved was ‘a very good performance.’ It is also worth noting that the inquiry by the Competition Commission was into a proposed acquisition by Interbrew SA, the Belgian brewing giant, of the brewing interests of Bass. Anheuser Busch’s evidence was given in opposition to that proposal, so what it said about its own market share was not a central issue for the Commission, and may have been influenced by the company’s strategy for the future. I say more about Anheuser Busch in paragraph 189 below.[166]What the Competition Commission records Anheuser Busch as having said in 2000 is indirect evidence at best, and for the reasons which I have described I do not attach much weight to it. In contrast to the lack of specific evidence from witnesses called on behalf of Mr Crehan, there was a lot of evidence from witnesses for Inntrepreneur, both expert witnesses and witnesses of fact, who had real hands-on practical experience and knowledge of the events which actually took place in the United Kingdom market. They all said that, to their own personal knowledge, in the aftermath of the Beer Orders it was not difficult for foreign brewers, if they had the appropriate determination and the necessary ‘deep pockets’ (Mr Dinesen’s expression), to get their products established in the United Kingdom market. Or at least the structure of beer ties and the like was not a major source of difficulty: if, for example, their brands were not perceived by the market as strong enough they would have difficulty in getting established, but that difficulty was not caused by the existence of networks of tied retail outlets.[167]I will outline the evidence which I have in mind in the following paragraphs, but I first record that Professor Yarrow, the economist who gave oral evidence in support of the NERA report, said to me that factual analysis of what was actually happening in the marketplace, if it was available, was more powerful evidence than deductions from economic theory or from statistics. I will quote two particular answers which I found to be persuasive in this respect. "… we have given figures for volumes in our report, we have given figures for numbers of outlets. But the reality, again starting with the consumer, the reality is that neither of those things is terrifically good at telling you whether a market is foreclosed or not, because you really do have to analyse what happens at the retail level." [Day 23 pp. 114-5] And later: "I am an economist like Dr Value [sic per the transcript], who tends to favour markets over bureaucracies. Markets are much better at processing the relevant information … than are bureaucrats.." [Day 24 p.82][168]In the paragraphs which follow I will attempt to identify and briefly to explain the principal factors which have led me to conclude that in 1991 (and subsequently) the relevant United Kingdom market was not foreclosed to the extent that it would have had to be for Delimitis condition 1 to be satisfied, and to conclude also that the decision which the Commission reached about this in Whitbread was wrong. As I have indicated two paragraphs above, several of my reasons are based on the evidence of persons who had first hand experience of the market at the time. Dr Veljanovski observed, in passages which I have quoted earlier, that direct evidence was lacking, and that he had not himself been able to undertake empirical research. To an extent the various items of evidence which have influenced me might be said to fill the gap which Dr Veljanovski experienced, and which in his case meant that he had to base himself substantially on reports by investigatory bodies and tables of statistics quoted in them.[169]I begin with a general point which is made by Mr Foster, who has been intimately involved in brewing and pubs at a very senior level for many years. In his witness statement he says:
"The consumer clearly benefits from diversity in the United Kingdom market. The range of products available to the UK consumer far outstrips that offered abroad. If you visit a pub in the UK today you can choose from a cask-conditioned beer, a premium beer, a standard lager, a premium lager, a Guinness, and a non-cask conditioned beer plus any brand of bottled beers one can think of. In addition in terms of price UK beer is cheaper than its foreign counterparts."
I cannot speak myself about prices here and abroad, but I think that I can say that anyone who visits pubs from time to time (and that is a large proportion of the adult population of the country) knows from personal experience that the other points which Mr Foster makes are correct, and already were correct by 1991. The proposition that, despite the evidence for all to see that a wide range of beers from all around the world is on sale across the bars of pubs in this country, nevertheless the market for getting supplies of products into retail outlets like pubs was and still is significantly foreclosed is, to put it cautiously, counter-intuitive.[170]Mr Spicer was the expert investment analyst who has specialised in the drinks industry. In his informative report he gave much interesting information about trends and about specific transactions which occurred in the United Kingdom beer and pubs businesses over the years, particularly in the 1990s. He had himself been a close student of the industry in those years. I will refer in subsequent paragraphs to particular points identified in his report, but here I simply reproduce his conclusion, which focuses particularly on the time when Mr Crehan was in occupation at The Cock Inn and The Phoenix:
"During the period 1991 to 1993 the UK beer market, in both brewing and retailing, experienced probably its greatest period of turmoil. However, as shown this did not preclude new entrants from the market and others from expanding their operations in the UK at the time."
[171]Mr Willis was another expert witness who described the business in the 1990s from the point of view of a well-informed insider who knew what was happening. He was a partner in Fleurets, a firm of chartered surveyors which specialised in breweries and pubs. The firm has now been incorporated, and Mr Willis is a director of the company. Fleurets, and often he personally, were involved in many transactions, large or small, which took place. He studied the market closely and was aware of other transactions even when he and his firm were not directly involved. As with Mr Spicer, I will refer in subsequent sub-paragraphs to some specific trends and transactions which he describes, but here I will quote two paragraphs from his report in which he sets out overall conclusions. "The upheaval in the property sector in the early 1990s brought about by the Beer Orders provided a perfect opportunity for a foreign brewer who wished to enter the UK market, without entering into a licensing arrangement. For the first time ever there were substantial estates of public houses actually for sale." Mr Willis adds the observation that several substantial estates of pubs were sold in the open market in 1991, 1992 and 1993 and were well known to be available, but attracted no significant foreign interest of which he was aware. Instead they were sold to new United Kingdom companies. My other quotation from Mr Willis’s report is this:
"I believe that during the early 1990s there was more opportunity for a foreign brewer to establish itself in the UK than at any time since the 1960s, when there was considerable consolidation in the industry. Opportunities existed (and were taken) by operators, including regional and local breweries and the new pub companies, to capitalise on the forced sales by the national brewers and to increase or establish their presence in the market."
[172]Mr Spicer and Mr Willis are making the points that in the early 1990s there were breweries available for purchase and that there were large numbers of pubs available for purchase. In so far as a new entrant, such as a brewer in another Member State of the EC, considered that it needed a United Kingdom brewery or pubs or both, they could have been obtained. Foreign brewers did not flock into the market, but their reasons for staying out can hardly have been that the domestic market was substantially foreclosed against them.[173]As regards breweries, in 1990 there was 40% over-capacity. Some breweries were closed and their sites were redeveloped for other purposes. Some were sold. For example, in January 1992 the Courage group sold the Ruddles brewery to the Dutch concern, Grolsch. I have the impression that Grolsch’s venture was not particularly successful, but there is no evidence, and I have seen no suggestion, that, in so far as problems arose, they were caused by the tied house system. Another example of a brewery which was available for sale was given by Mr Foster. After the pubs for breweries swap Courage wished to sell the Ushers brewery at Trowbridge in Wiltshire. It was a modern brewery, offered with a portfolio of about 400 pubs in the South West and Wales and an established distribution network. Courage received no interest from any foreign buyer, and eventually the brewery was sold to a management buy-out team.[174]As regards pubs, the Beer Orders led to something like 11,000 pubs being available for sale. Foreign brewers do not seem to have been interested, and most of the pubs were purchased by United Kingdom corporate buyers, some being regional brewers which wished to expand their operations, and others being the new-style Pubcos, which I described earlier (see paragraph 27, the third bullet point) and which arose as significant forces in the market after the Beer Orders.[175]Even if the outlets in the tied estates of established brewers and of Inntrepreneur were substantially foreclosed to an aspiring new entrant in the early 1990s (which I in any event question, as I explain in paragraphs 184 and 185 below), it was clear that, particularly after the freeing from tie of thousands of pubs by 31 October 1992 as required by the Beer Orders, there was a very large part of the on-trade sector which was fully open to competition: ‘fully contestable’ was how the economists expressed it. Mr Spicer gives the statistic that in 1994 there were just over 150,000 on-licensed premises, of which brewers owned about 26,000 (17.3%). In terms of volume of beer supplied the brewer-owned premises may have accounted for rather more than 17.3%, but there was still a very large proportion of the national market which was available to a new entrant, without being sealed off by ties in pub leases.[176]I should mention with reference to the statistics from Mr Spicer’s report which I have just quoted that I am not sure whether he has included the Inntrepreneur tied estate in the 17.3%. Probably not, since Inntrepreneur was not itself a brewer. If it was included the percentage might have gone up to something like 21%, but that still leaves a lot of other on-licensed premises. The various experts’ reports and submissions which I received were replete with statistics, derived from varying sources and applying to different dates. I find it hard to pin the statistics down precisely. Questions such as whether supplies by Courage to the Inntrepreneur tied estate counted as tied supplies or not, whether figures should be adjusted because they had not taken account of some supplies by tying brewers being supplies of guest ales so that they ought not to count as tied supplies, whether comparisons should be made by reference the numbers of tied and untied outlets or rather by reference to the volume of tied and untied throughputs of beer, and the like arose constantly. Nevertheless, the statistics do give a clear impression that the Beer Orders, and the consequences of them as the effects came through over the years, dramatically and progressively reduced the extent to which pubs were tied to the large national brewers and correspondingly enlarged the proportion of the market which was, either immediately or within a reasonable time, available to be approached by aspiring entrants to it.[177]I now wish to say something about ties which were contained not in leases but in loan agreements. Breweries did make loans to on-trade operators, and typically they inserted ties of some sort in the loan agreements. In my judgment these ties should not be regarded as having a foreclosing effect. The reason is that by virtue of the LTO the loans had to be repayable at no more than three months notice. In Whitbread the Commission said that in 1997 loan-tied houses accounted for 18.1% of volume throughput, of which it estimated that about 10% was attributable to the ties (recognising that loan ties were likely to be partial ties only, permitting the borrowers to buy part of their supplies outside the ties). The Commission counted this percentage of about 10% towards its evaluation of how much of the market was foreclosed to a new entrant. This is one of the major respects in which counsel for Inntrepreneur, supported by the expert economic evidence of NERA and Professor Yarrow, criticise the Commission’s decision. I agree with the criticism. As Professor Yarrow said:
".. any agreement with a three month termination clause with no redemption penalty cannot conceivably be thought in economic terms to have any foreclosing effect whatsoever."
[178]The Commission says that, although loans with ties in them are terminable at three months notice, the average duration of the loans, and thus of the ties, is four years, an indication that ‘the contractual relationship is not a temporary one’ (Whitbread decision, paragraph 115). The inference is that loan ties have a four years foreclosing effect. I find this unconvincing. A free house operator who has contentedly been purchasing most of his beer supplies from one brewery for years, without a tie of any kind, will be inclined, other things being equal, to carry on using the same supplier; perhaps the average duration of an untied relationship might be four years; perhaps it might be rather less. Either way, no-one could say that pubs of that sort are foreclosed to new entrants for, on average, four years or whatever the typical period is. In my opinion it is no different in the case of loan ties. Loan tied pubs should be equated with free of tie pubs rather than with tied pubs in the exercise of determining what proportion of the United Kingdom on-trade outlets is freely accessible to entrants to the market and to existing incumbents looking to pick up new business.[179]Before leaving loan ties I should mention the CJEC decision in Neste Markkinointi Oy v Yötuuli Ky, Case C-214/99, [2000] ECR I-11121. The decision was given after the Commission’s decision in Whitbread. The case concerned a contract for the supply of petrol to a filling station in Finland. The filling station was tied to purchase all of its supplies from the supplier, but the contract was terminable on 12 months’ notice. The CJEC held that, because of the relatively short notice period, the contract did not make a significant contribution to any sealing-off or foreclosing effect so far as the market for supplying petrol to retail outlets was concerned. The case was concerned directly with Delimitis condition 2, whereas at this point in my judgment I am considering condition 1. Nevertheless, it seems to me that the Commission’s view in Whitbread that loan ties which were terminable at three months’ notice could have foreclosing effects cannot stand with the Neste decision. I note for example that in paragraph 32 of its decision the CJEC says:
‘… duration is the decisive factor in the market-sealing effect.’
It is clear that what the court means by ‘duration’ is the period during which the agreement cannot be terminated, not the period for which it is in practice likely to last without termination.[180]Having considered loan ties in the foregoing sub-paragraphs, it is appropriate for me at this point to say something about beer supply contracts. These are another kind of contract which the Commission in Whitbread regarded as having a foreclosing effect and which it counted in the exercise of estimating what percentage of the United Kingdom on-trade market was foreclosed. They are agreements between a brewer and an owner or operator of pubs for the brewer to supply some proportion of the pubs’ beer requirements for a specified period. The economists described these as vertical agreements, rather than as instances of vertical integration (the expression used to designate the structure where the brewer owns the retail outlets). I accept that beer supply contracts could have similar effects to beer ties in leases. Indeed the contract between Inntrepreneur and Courage provided for Courage to be the nominated supplier of beers to Inntrepreneur’s tied tenants for seven years, and I would agree that that particular contract, taken together with the beer ties in the leases, did have a foreclosing effect so far as the Inntrepreneur tied pubs were concerned, at least in its earlier years of operation. (Whether it was a sufficient foreclosing effect to cause Delimitis condition 1 to be satisfied is of course a different question.) Mr Williams and Mr Foster both gave evidence that after the Beer Orders (with both the letter and the spirit of which Grand Met and Courage were loyally complying) they detected a trend on the part of other major brewers to comply with the letter of the Orders by releasing lessees from beer ties in their leases but not to comply with the spirit: the concern was that the other brewers were releasing publicans from lease ties but were then signing them up to beer supply contracts, which by another route tied the publicans to the brewers almost as effectively as they had been tied before. Mr Williams and Mr Foster had both made this point forcefully to the House of Commons Agriculture Committee in 1993.[181]However, despite what Mr Williams and Mr Foster said, I do not think that the Commission’s treatment of beer supply contracts in its Whitbread decision can be supported. The Commission estimated that in 1997 around 13% of beer supplies to the on-trade was made pursuant to what it described as ‘tying’ supply agreements. That percentage included the supplies to Inntrepreneur lessees. I would agree that the supplies pursuant to the Inntrepreneur/Courage agreement could in earlier years have been regarded as arising from a tying agreement, but in 1997 the agreement was going to expire in about a year (on 28 March 1998). However, in 1991, when Mr Crehan became bound to take most of his supplies from Courage, the contract had six years to run, so I accept that it should be evaluated on the basis that, except to the extent of the guest ale, low alcohol beers and no alcohol beers, which Mr Crehan could buy from any supplier, his particular retail outlets – The Cock Inn and The Phoenix – were foreclosed.[182]However, as regards other beer supply contracts I agree with NERA and Professor Yarrow that the Commission is wrong simply to regard them as inherently foreclosing in nature. I agree that it is necessary to look more closely at the terms of the contracts. If a publican or a Pubco (in practice it seems that the Pubcos are the most important parties to beer supply contracts with brewers) agrees to take all of his or its beer supplies from one brewery for, say, seven years, that has very much the same foreclosing as a seven years beer tie in a lease. But if a publican or a Pubco agrees to take about a quarter of its supplies from one brewery for, say, two years, that is altogether different. No evidence was adduced on behalf of Mr Crehan as to the form which beer supply contracts were taking in the early 1990s, or as to the form which, at the time of his agreements in July 1991, it was expected that beer supply contracts would take as the effects of the Beer Orders came through.[183]Such evidence as there was suggests that beer supply contracts tended to be non-exclusive and relatively short term. Mr Spicer said that they varied in duration and exclusivity. For example in 1995 Regent Inns (a Pubco) had a three years agreement with Bass and one year agreements with Courage and Whitbread. The OFT was alive to the danger that brewers might try to use beer supply contracts as substitutes for beer ties in leases. In 1993 Allied Lyons, at the time one of the large national brewers, was proposing to conclude a seven years contract with a Pubco called Pubmaster for the supply of two-thirds of Pubmaster’s beer requirements. The OFT required the contract to be reduced to a three years contract for one-third of Pubmaster’s requirements. The House of Commons Agricultural Committee in 1993, despite what Mr Williams and Mr Foster had said to it, reported that it saw no objection to beer supply contracts. None of the foregoing is reflected in the Whitbread decision, which simply regards all supply agreements as having the same foreclosing effects as beer ties in leases. That is a view which I do not share.[184]Another general question which I should examine is how far it is true to regard a leased pub where there is a beer tie in the lease as itself being unavailable as a potential outlet for an entrant into the market or for an incumbent which wants to increase its turnover. The answer is that it is true to a considerable extent, but not entirely. Two specific ways in which a brewer other than the tying brewer (or Courage in the case of Inntrepreneur leases) might be able to achieve some sales through the pub notwithstanding the tie are, first, via the guest ale provision (not of course of any use to a lager producer), and, second, by getting its products on to the price list of the tying brewer.[185]As to this second method, it is not the case that the ties in Inntrepreneur leases bound lessees to buy only beers brewed by Courage (apart from the guest beer, non-alcohol beers and low alcohol beers). They bound the lessees to buy beers supplied by Courage. There was nothing to stop Courage from supplying beers brewed by other brewers, and, as I have observed earlier (see paragraph 34(ix) above), Courage did in fact do that. Of course Courage’s price lists included all the beers which it brewed, but they also included a good selection of ales and lagers brewed by other brewers. Economic theory might suggest that a brewer like Courage would not be prepared to market the products of a competitor, but this is one of those matters where economic theory must yield to the reality of what happened in the marketplace. Mr Dinesen (of Carlsberg – see paragraphs 186 and 187 below) commented that the large national brewers ran efficient wholesaling operations, whereby they wholesaled beers produced by other brewers. Mr Foster pointed out that one of Courage’s obligations in the Beer Procurement Agreement between it and Inntrepreneur was to provide a wide range of high quality beers in line with consumer demand. He said that Courage was interested in stocking new products which would sell. An interesting snippet of evidence to a similar effect came up in the cross-examination of Mr Wilson, a retired director of a regional brewery, Mansfield Brewery. The main purpose of his evidence was to show how the effects of the Beer Orders enabled regional brewers to expand their operations, but he did say in answer to a question that there was an advantage in having other breweries’ brands available in the pubs of breweries like Mansfield, if the other beers were well liked in a particular area. Mansfield did not look on that as a disadvantage to itself, even though the beer was competing with its own products.[186]I move on to consider some specific features and events affecting the United Kingdom market. Mr Crehan’s case, and the Commission’s conclusion in Whitbread, is that the tied estate system foreclosed the market to overseas brewers which would have liked to enter it. Inntrepreneur adduced evidence from a Continental company which had set about entering the market without having a tied estate of pubs, and which had done so with conspicuous success. In about 1970 the Danish lager brewer, Carlsberg, decided to establish an operation in the United Kingdom. In a joint venture with Grand Met it built a brewery in Northampton, and was very successful. Carlsberg bought out Grand Met’s interest in 1985. Mr Foster said that in the 1980s it was the most profitable brewing operation in the country.[187]Evidence was given about Carlsberg’s entry into the United Kingdom market by Mr Dinesen. He came to this country in 1985 as Commercial Director of Carlsberg in the United Kingdom. He was Chief Executive from 1988 to 2001, and is still Chairman of the company. Because of mergers the company is now known as Carlsberg Tetley Brewery Limited. I summarise some of the points which Mr Dinesen made in his evidence.• Entry into and growth within the United Kingdom market was easy.• Tied estate networks facilitated product entry, and were of assistance to a foreign brewer. Whereas sales to free houses took time, having to be individually negotiated, it was much easier to negotiate with the owner of a tied estate.• Mr Dinesen did not believe that it was difficult to get into the United Kingdom market at the time of the Beer Orders.• Carlsberg set up its own distribution system, which was the way to proceed if the market entrant did not want to deal through other brewers.• It is not correct to say that the estates of the large brewers are basically ‘out of bounds’.• The market is now becoming freer and freer, with fewer and fewer ties; it is less and less foreclosed, and that is a development which has gone on for many years now.• An entrant to the market needs deep pockets, but if it is willing to invest it can get into the market.[188]Fosters is another example of an overseas brewer which successfully established itself in the United Kingdom market. It did so predominantly in the 1980s, even before the impact of the Beer Orders on the tied house system. Fosters lager acquired an attractive image even before it was widely available in this country, and then started to sell in substantial quantities, initially through off-licences. It originally ‘cracked’ the market (Mr Foster’s term) through a licensing agreement with Grand Met, which enabled the brand to be brewed in this country. Obviously it was not going to achieve a large penetration of the market if it all had to be imported from Australia. When Elders (the Australian owner of the Fosters brand at the time) acquired Courage in 1986 the product began to be brewed in breweries owned by the Courage group, and, in so far as was not already the case, was soon on sale in pubs nationwide, as it still is today.[189]I have already mentioned Anheuser Busch and its celebrated American beer Budweiser. Anheuser Busch (no doubt amply supplied with the deep pockets to which Mr Dinesen referred) took a lease of the Mortlake brewery in 1995. Mr Spicer explained that its efforts to get draught Budweiser established in pubs were not particularly successful, so that more recently the company has concentrated on the beer which it sells in long-necked bottles. This has been very successful, and, as I have said above, Budweiser has about one third of the national on-trade market for packaged (i.e. bottled or canned) premium lager. That percentage could not have been achieved without access to a great many pubs, and the tied house system has plainly not prevented Anheuser Busch from obtaining that access. This suggests that, whatever may have caused Anheuser Busch to be relatively unsuccessful in getting draught Budweiser established in United Kingdom pubs, it is unlikely to have been the tied house system.[190]One of the recent major developments in the industry has been the acquisition (I believe in 2001) by Interbrew SA, the Belgian brewing giant, of most of the brewing interests of Bass and Whitbread. Interbrew did not acquire the tied estates. This seems to me to demonstrate that major operators in the industry recognise that, if a brewer has good brands, it does not now need an estate of tied pubs for it to be able to sell its beers into the on-trade market. It may have been different before the Beer Orders (although the examples of Carlsberg and Guinness, both of which have always sold successfully without tied houses, causes me to wonder about even that), but since the Orders a brewer does not need a tied estate.[191]Another overseas brewer which was not put off from attempting to establish itself in the United Kingdom market was Labatt’s of Canada. It adopted a rather different structure the details of which I do not think I have succeeded in understanding properly. It had some sort of agreement with two regional brewers for them to brew its beer for it, and it distributed the beer via supply contracts with Pubcos and partly through an estate of pubs which (I think) it did not own itself, but as respects which it gave some kind of support to a Pubco called Maritime Taverns. Mr Foster said that ultimately the Labatt’s venture was not a success, and I have the impression that it has withdrawn from the United Kingdom market by now. However, as with Grolsch, there is no suggestion that, to the extent that Labatts did not prosper in the United Kingdom, the reason was the foreclosing effect of the tied house system. Not every attempted entrant into a large and well-served market like the United Kingdom beer market is going to make a success of it, as the example of the failed attempt to establish Harp as a lager brand in the United Kingdom market shows.[192]I need to say something about licensing as a means of entry for an overseas brewer into the United Kingdom market. Many, probably most, of the foreign lager brands which are available in pubs are brewed by United Kingdom companies under licence from the foreign proprietors of the brands. Fosters first became available in significant volume in the market in consequence of a licence granted to Grand Met. That was before Elders, the Australian owner of Fosters, bought Courage. Carlsberg and Budweiser were first brewed in this country by United Kingdom brewers under licence from the Danish and American owners of the brand. Many other examples could be given, such as Stella Artois (now the largest selling premium lager in the country) which used to be brewed by Whitbread under licence from the Belgian owner.[193]One of Inntrepreneur’s reasons for asserting (with reference to Delimitis condition 1) that it is not and was not difficult for overseas competitors to gain access to the United Kingdom market is that, if an overseas brewer had a good brand (and a brand having ‘heritage’) it would not be difficult for it to find a United Kingdom brewer willing to take a licence and to brew the brand for distribution on the domestic market. There was an issue in the case about whether this is an acceptable form of entry into the United Kingdom market for the purposes of Delimitis condition 1. Dr Veljanovski noted that in paragraph 21 of the judgment in Delimitis the CJEC identifies ways in which a new competitor can ‘penetrate the bundle of contracts’. Penetrating them by licensing a product to a United Kingdom brewer which has access to a tied estate is not mentioned as one of them. Dr Veljanovski suggests that licensing is not an acceptable form of entry to the market for purposes of Delimitis. I agree that the court does not specify it as an acceptable form of entry, but why should it not be one? Dr Veljanovski accepted that in economic terms it is a means of entry (not accepting a suggestion from me that, if a foreign brand proprietor licenses a United Kingdom brewer to brew its brand, it does not enter the market at all). It is the cheapest, quickest and most efficient means of entry, at least in the first instance. Economists may feel uncomfortable about it, because it is a ‘horizontal’ arrangement between potential competitors operating at the same level of the market (the production level), but there is no evidence that it has done any harm to anyone. On the contrary, licensing has played a very large role in enabling United Kingdom consumers to have access in pubs, clubs and restaurants to an extensive range of beers originating in many parts of the world.[194]Hitherto in the foregoing paragraphs I have concentrated on would-be new entrants to the United Kingdom market, especially on new entrants from abroad. I now wish to say something about the competitors in relation to whom the CJEC in Delimitis poses the question whether it is difficult for them to increase their market shares. These are the existing incumbents in the market.[195]At the time when Mr Crehan had his pubs it was certainly not difficult for incumbents to increase their market shares. As I have pointed out earlier, there were breweries available for purchase if any incumbent brewer wanted to increase the volume of its production capacity. As I have also pointed out earlier, there were unprecedentedly large numbers of pubs available for purchase because of the provision in the TEO which required the large brewers to sell or free from tie many of their tied houses not later than 31 October 1992. The evidence showed that several regional brewers took advantage of the opportunity, and bought significant estates of pubs, so expanding their operations considerably. Mansfield Breweries was one such brewer. Mr Wilson gave evidence about it. Morlands was another. Mr MacMahon, the former Estates Manager of Morlands, gave similar evidence. There were undoubtedly several other regional breweries which in a similar way enlarged their businesses in their own parts of the country. This was the sort of thing which Mr Willis knew all about, given his particular area of expertise, and he identified a number of other examples.[196]A final point to make – perhaps not a particularly important one – is that throughout the 1990s there was no shortage of ‘micro-breweries’ being established all over the country, seeking to brew new brands of ale and to establish themselves in the market. Mr Willis gave a few examples in his report. One, which I think is a name quite well known to aficionados of ale products, is the Black Sheep brewery. A member of the Theakston family established it in Masham, North Yorkshire, after the sale of the long-established Theakston’s brewery to Scottish & Newcastle. The existence of tied estates does not appear significantly to have discouraged entrepreneurial activity by persons in this county who wanted to set up their own brewing operations.[197]Given all of the circumstances which I have described and discussed in the foregoing paragraphs I can only conclude that the United Kingdom market for the distribution of beer to on-trade outlets was, at the relevant time, not foreclosed to the extent implied by the Delimitis test of whether it was 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. I am not prepared to find that the United Kingdom market was foreclosed to that extent simply because the Commission thought that it was and said so in its decision in Whitbread. I have made up my own mind on the basis of the extensive evidence which has been placed before me. I do not suggest that the market was 100% open to all comers. The tied estates, even after the Beer Orders, cannot be brushed aside as insignificant, and they did to some extent seal off a part of the market. But the sealing off was not complete even within the tied estates. Much more importantly, leaving the tied estates aside there were, in my view, amply sufficient fully contestable other outlets to mean that Delimitis condition 1 was not satisfied.[198]It follows that Mr Crehan’s claim for damages for breach of article 81 cannot succeed. Applying the Delimitis criteria to the evidence before me I conclude that there was no breach of article 81. There were, however, many other issues which were raised in the trial, and, particularly bearing in mind that this case may go further, I must say something about those other issues, even if I do not discuss them in the full depth which I might have thought appropriate if I had come to a different conclusion about Delimitis condition 1. Delimitis condition 2[199]If Mr Crehan had satisfied me that Delimitis condition 1 was satisfied, he would also have to establish that condition 2 was satisfied, since the two conditions are cumulative. The CJEC, in its answers to the questions submitted by the Frankfurt court, expressed condition 2 in this way:
‘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.’
Despite the reference to ‘the agreement in question’, it is clear, both from the inherent nature of the issue and from the court’s discussion in the main body of its judgment, that the second condition has to be applied, not by reference to one individual agreement, but by reference to the particular network of tying agreements to which the individual agreement belongs. In this case the question is not whether the beer ties in the leases of The Cock Inn and The Phoenix made a significant contribution to such sealing-off effect as there was. Taken by themselves they obviously did not. The question is rather whether the network of beer ties in the Inntrepreneur tied estate made such a contribution.[200]In my opinion, although Mr Crehan entered into the agreements for leases of The Cock Inn and The Phoenix in July 1991 before the substantial freeing of pubs from ties required by the TEO (which was required to happen by 31 October 1992), the question falls properly to be considered by reference to how the United Kingdom market was going to be structured for the medium term ahead, not for just a short term ahead. In July 1991 it was known that the tied estates were required by law to be dramatically reduced in size in only 15 months’ time, and it is appropriate to evaluate Delimitis condition 2 taking account of those anticipated changes. This is, in my opinion, supported by the Neste case in the CJEC, referred to in paragraph 179 above.[201]In 1997 the Commission published a notice, commonly referred to as the De Minimis notice, which set out the Commission’s views on the threshold which would have to be reached before an individual agreement could be said to make a significant contribution to any foreclosing or sealing-off effect. I am not sure whether there was a similar notice in force in earlier years, when Mr Crehan was in occupation of his pubs, but I think that probably there was not. The 1997 notice has now been replaced by a notice issued in December 2001, which was itself foreshadowed by a Press Release dated 7 January 2001. These notices are not regulations which themselves take legal effect. They are, in Dr Veljanovski’s words, ‘administrative guidelines’ which indicate levels of market penetration below which businesses can be confident that the Commission will not itself take action under article 81 on grounds of alleged restriction or distortion of competition. I do not, therefore, regard the De Minimis notices as legal instruments which could themselves determine whether Delimitis condition 2 was satisfied. It is nevertheless appropriate to look at them.[202]The 1997 notice only applied to single operators in a particular market. It did not lay down de minimis guidelines for networks of parallel agreements. The 2001 notice does. The effects of it in practice are that parallel networks of agreements will not be regarded by the Commission as having a collective foreclosing effect if they cover less than 30% of the relevant market, and that an individual network will not be regarded as making a significant contribution to the collective effect if it has a market share of 5% or less. Further, the Commission will allow an element of tolerance for small excesses for a limited period. If a particular network exceeds the 5% threshold, but only for one or two successive years and by no more than 2 percentage points, the network will still be regarded as not making a significant contribution.[203]I would not base a decision about whether Delimitis condition 2 applies in this case simply on the Commission’s present view as set out in the guidelines, but it is worth noting that the guidelines would suggest that the Inntrepreneur tied estate did not make a significant contribution. While the total share of the market accounted for by all networks after the 31 October 1992 releases from tie may have been slightly more than 30% (depending on which particular set of statistics one adopts, and with several areas of doubt over such matters as whether loan ties should be counted or whether supplies of guest ale had or had not been excluded), the statistics do seem to show that the post-1992 Inntrepreneur tied estate was only about 3% of the number of on-licences: 4,331 pubs, compared to total on-licensed premises in the United Kingdom of about 150,000. If the criterion is throughput of volume rather than number of on-licences, then according to calculations prepared by NERA (based on information supplied by Inntrepreneur to the OFT in 1995 and on national industry statistics) beer sales by Courage to the Inntrepreneur estate in all years from 1992 to 1995 were below 4.5% of total beer supplies from all sources to on-trade outlets. Further, not all of the sales to the Inntrepreneur estate were tied sales, because the percentages given included sales by Courage of guest ales. (It will be recalled that a lessee could purchase his guest ale from the tying lessor or its nominee, like Courage, and that quite a lot of lessees, including Mr Crehan, did so.) The percentage of beer sales by Courage to the Inntrepreneur estate for 1991 is recorded as 5.2%, but that figure requires downward adjustment in two ways: first by excluding guest ale sales made by Courage, and second by excluding the sales made by Courage to the pubs which were known to be going to become free of tie on 1 November 1992. Those reductions would certainly bring the 1991 percentage well below 5%.[204]Simply on those statistics I would, I think, be inclined to agree with what would now be the Commission’s evaluation, namely that the Inntrepreneur tied sales from November 1992 onwards were not large enough to make a significant contribution to such level of market foreclosure as may have existed. However, there is a somewhat wider way of looking at the matter, which is the way in which I prefer to look at it myself. I find it hard to apply Delimitis condition 2 without considering it in the context of condition 1. That is, in determining whether the size of a particular network’s turnover makes a significant contribution to the foreclosing effect of the aggregate turnovers of all networks, it seems to me inevitable that one has to know what is the size of that aggregate. To take an extreme example, if the aggregate turnover of all networks accounted for only 10% of the market but (improbably) that level of foreclosed turnover was judged to be sufficient to make it difficult for new competitors to access the market or for incumbent competitors to increase their market shares (Delimitis condition 1), an individual turnover of, say, 4% of the market would make a significant contribution. Four as a proportion of ten is significant. Four as a percentage of 30 is much more borderline.[205]In the circumstances I will not express a view on Delimitis condition 2 as if it was a self-contained issue entirely distinct from condition 1, because I do not think that it is. I will only say this. The Inntrepreneur tied estate, after 1992 as well as before, was the largest tied estate in the country. It would be curious, though not impossible, if all the tied networks collectively did foreclose the market to a sufficient degree to satisfy Delimitis condition 1, yet no single network among them, not even the largest network, made a significant contribution. That amounts to saying that a market can be foreclosed but no-one makes a significant contribution to the foreclosure. Having said that, I will nevertheless leave unresolved what I would have decided about condition 2 if I had been in favour of Mr Crehan on condition 1. The Block Exemption[206]Since I have decided in favour of Inntrepreneur that, because at least one of the two cumulative Delimitis conditions was not satisfied, Inntrepreneur’s beer ties were not covered by article 81(1) in the first place, it follows that Inntrepreneur does not need the benefit of the Block Exemption to be taken out of the sub-article. However, the issue was fully argued, and I think that I ought to indicate my view on it. My view is that the Block Exemption would not have applied. I take that view principally on the basis of two decisions of the Court of First Instance, which I consider bind me in priority to earlier decisions to the opposite effect of the Court of Appeal in this country. I also think that there is a narrow and difficult point of construction which means that the Block Exemption cannot in any event apply to the tripartite structure which existed in this case, involving not just a brewer landlord and a tenant, but a non-brewer landlord (Inntrepreneur), a non-landlord brewer (Courage) and a tenant (for example Mr Crehan).[207]At the relevant time the Block Exemption was contained in Commission Regulation (EEC) No 1984/83. The recitals referred to the power of the Commission to grant exemptions under article 81(3) (of the EC Treaty). They said, among other things, that the conditions for article 81(3) exemption were normally satisfied by ‘long term exclusive purchasing agreements entered into for the resale of beer in premises used for the sale and consumption’. The Regulation thereafter referred to such agreements as ‘beer supply agreements’. Other recitals enlarged on the advantages of such agreements, and one recital said that ‘it is necessary to provide special rules for those premises used for the sale and consumption of drinks which the supplier lets to the reseller.’ The operative provision so far as the present case is concerned was article 6. I reproduce it below, interpolating at one or two points in italics words which identify the particular party referred to. Title II Special provisions for beer supply agreements Article 6 1. Pursuant to Article [81](3) of the Treaty … it is hereby declared that Article [81](1) of the Treaty shall not apply to agreements to which only two undertakings are party and whereby one party, the reseller [the publican tenant], agrees with the other, the supplier [the brewer landlord], in consideration for according special commercial or financial advantages, to purchase only from the supplier [the brewer landlord], an undertaking connected with the supplier [an undertaking connected wih the brewer landlord] or another undertaking entrusted by the supplier [another undertaking entrusted by the brewer landlord] with the distribution of his goods, certain beers, or certain beers and certain other drinks, specified in the agreement for resale in premises used for the sale and consumption of drinks and designated in the agreement. 2. The declaration in paragraph 1 shall also apply where exclusive purchasing obligations of the kind described in paragraph 1 are imposed on the reseller [the publican tenant] in favour of the supplier [the supplier of beer, typically a brewer] by another undertaking which is not itself a supplier."[208]Inntrepreneur contends that, although article6.1 did not apply in this case, because three parties, not two, were involved, article6.2 did. I will consider that question later. For the present I concentrate on the question which has arisen in several earlier cases or Commission decisions about whether article 6, even in a two party case, is ever capable of applying to beer ties of the kind which are standard in pub tenancies and leases in the United Kingdom.[209]The critical point is that United Kingdom beer ties, including the ties in the Inntrepreneur leases, are always expressed as ‘ties by type’, not ‘ties by brand’, and there have been conflicting opinions expressed about whether the Block Exemption as worded in article 6 can ever apply to a tie by type. A tie by brand would name certain specific brands of beer and oblige the tenant to purchase only those brands, and to purchase them from the landlord or from a supplier nominated by the landlord. Inntrepreneur’s ties were not like that. The leases of The Cock Inn and The Phoenix (which were annexed in draft to the agreements for lease, and the tying provisions of which took effect immediately) provided that, subject to a guest ale provision, Mr Crehan was to purchase from Inntrepreneur or its nominees and not from anyone else ‘all such Specified Beers as he shall require for sale in the Premises.’‘Specified Beers’ meant ‘beers of the types set out in Part A of the Appendix.’ Part A set out a list of 13 types of beer, such as ‘Light pale or bitter ale’, ‘bitter stout and porter’, and ‘lager’. At the date of the agreement the Specified Beers were represented by the particular brands listed in Courage’s most recent price list. There was power to change the price list from time to time, and Courage did change it from time to time.[210]It has always been the view of the Commission that article 6 of the Block Exemption Regulation could only apply to ties which were expressed as being ties by brand: it did not apply to ties by type. I think that the Commission was influenced by the feature that, with a tie by type, the landlord or its nominee could change the brands which the tenant was permitted to purchase and, for example, remove a brand from the current price list, so stopping the tenant from buying a brand which he had previously been able to buy. Whether there is anything objectionable in that may be debatable, but the Commission appears to have been averse to it. When Mr Fleck and his colleagues had their first meeting with Mr Mensching and the other representatives of the Commission on 19 November 1992, the Commission representatives made it clear at an early stage that they did not see scope for the Block Exemption to apply. It appears from Mr Fleck’s evidence that, although Inntrepreneur reserved its position and could not have been regarded by the Commission as having conceded the issue, they never discussed the matter again.[211]The issue or a closely related one has been considered in a number of cases, both in the Community courts and in the English courts. The authorities as they now stand do not leave the matter in a satisfactory state. They begin with a part of the Delimitis judgment which I have not yet considered. In paragraphs 34 to 36 the CJEC considered whether a beer supply agreement fell within article 6 of the Block Exemption when the range of products subject to the exclusive purchasing obligation was not specified in the text of the agreement itself but was contained in the stock and price lists drawn up at regular intervals by the supplier. The court held that such an agreement was not protected by article 6. It said that the actual products had to be specified in the agreement, and that the purpose of that was to prevent the supplier from unilaterally extending the exclusive purchasing obligation.[212]Why does the CJEC’s decision on that point not answer the question in this case? It appears that it does not, because in the Byrne case, to which I will come below, the English Court of Appeal said that the problem of a tie relating to a list of products which the supplier could alter from time to time (the situation addressed by the CJEC in Delimitis) was not one which existed in the Byrne case itself. The lease in the Byrne case was an Inntrepreneur lease. I must be missing something, but it is not obvious to me that, so far as the Block Exemption and the distinction between ties by type and by brand are concerned, the situation which the CJEC was considering and reaching a decision upon in Delimitis is not essentially the same as the situation raised by an Inntrepreneur lease, like the lease in the Byrne case and the leases in this case. However, it may be that the Court of Appeal understood that the tie in Delimitis permitted the landlord unilaterally to extend the types of drinks to which the tie related, as well as the particular brands within the types which were already specified. See Millett LJ in Greenalls Management Ltd v Canavan [1998] EuLR507 at 513-4. My feeling of uncertainty about why the Delimitis decision on this point is not highly relevant is heightened by the feature that, in the full arguments which were addressed to me about the Block Exemption, neither party made any significant reference to it.[213]However that may be, I move on to mention the cases decided in the Court of Appeal. The first was Greenalls Management (supra). Two members of the court (Millett and Judge LJJ) held, obiter, that a tie by type could come within the Block Exemption. The third member (Staughton LJ) thought that there was still room for argument. The second case was Gibbs Mew Ltd v Gemmell [1998] EuLR 588. Peter Gibson LJ, with whom Mantell LJ agreed, held that a tie by type came within the Block Exemption. Schiemann LJ preferred to express no view on the point. The third case was Byrne v TIBSCO Ltd, to which I have already referred. TIBSCO is the company which used to be called Courage Ltd. The case was heard by the Court of Appeal in 1999 together with four other cases, including the present case between Mr Crehan and Inntrepreneur. It was the occasion when the Court of Appeal referred questions in Mr Crehan’s case to the CJEC. The cases are reported together under the name Courage v Crehan at [1999] 2 EGLR 146. The relevant passages in the Byrne case are at pages 166-7. The court held that it was bound by the two earlier Court of Appeal cases, and that a tie by type could come within the Block Exemption.[214]That was in May 1999. In February 1999 the Commission had issued its decision in Whitbread. In that decision it found that the beer ties in the Whitbread leases were ties by type, not by brand, and therefore (in the Commission’s view) could not come within the Block Exemption. The Commission considered that the point was covered by the decision of the CJEC in Delimitis. If the matter stopped there I think that I would be bound to follow the English Court of Appeal, which had held, first, that the question was not decided by Delimitis as respects beer ties of the nature with which I am concerned, and, second, that ties by type can qualify for the protection of the Block Exemption.[215]However, the matter did not stop there. Two Whitbread lessees who were dissatisfied with the decision of the Commission to grant to Whitbread an individual exemption took the matter to the Court of First Instance. The Court of First Instance upheld the decision that Whitbread should have an individual exemption, but, relevantly for present purposes, it also stated what it considered the law to be as regards the Block Exemption. The case is Shaw and Falla v Commission supported by Whitbread, Case T-131`/99, decided on 21 March 2002. The court said quite unmistakably that only a tie by brand can come within the Block Exemption; see paragraphs 48 and 49 of the judgment, in which Delimitis is cited. The court may not have needed to say this, because no arguments about the Block Exemption were presented to it, but the court did say it nevertheless.[216]Further, essentially the same thing happened in relation to the individual exemption which the Commission had granted to Bass. A dissatisfied tenant took that case to the Court of First Instance, which delivered a similar decision on the same date as it decided the Whitbread case. This second case is Joynson v Commission supported by Bass plc, Case T-231/99. The court upheld the Commission’s decision to grant to Bass an individual exemption, but it also agreed with the Commission that the Block Exemption could not have applied, because the beer ties in Bass’s leases were ties by type, not ties by brand; see paragraphs 56 to 58 of the judgment. I will quote one sentence from paragraph 57:
"The standard leases of Bass could not benefit from the block exemption defined by Regulation No 1984/83 but were the subject of an individual exemption because, contrary to the conditions required by Article 6 of the Regulation, they laid down a specification of the beer purchasing obligation by type of beer and not by brand or name."
The court went on to observe that this was a purely technical matter which did not prevent the ties from complying with the spirit of the regulation. In those circumstances the court upheld the decision of the Commission to grant an individual exemption.[217]My understanding of section 3 of the European Communities Act 1972 (as amended) is that questions as to the meaning of any Community instrument (like the Block Exemption Regulation) are questions of law and are to be determined as such in accordance with the principles laid down by any relevant decision of the CJEC or the Court of First Instance. In my view I am obliged by the statute to apply the law as declared by the Court of First Instance in the two cases to which I have referred. That obligation overrides my normal duty to regard myself as bound by decisions of the Court of Appeal. Therefore, if Inntrepreneur needed the protection of the Block Exemption, my decision would be that it did not qualify for it because the Inntrepreneur beer ties were ties by type, and the meaning of the Block Exemption (as definitively determined by the Court of First Instance) is that such ties cannot come within the terms of the exemption. I add that I believe that I would still be bound to apply the law as laid down by the Court of First Instance even though none of the parties to either case had presented arguments to that court about the Block Exemption.[218]There are two other points on the Block Exemption which I must briefly make before I move on. The first is to consider whether the tripartite relationship between Inntrepreneur, its tenants (like Mr Crehan) and Inntrepreneur’s nominated supplier (Courage for most of the time), which Inntrepreneur accepts could not be covered by article 6.1, is within article 6.2. This is a difficult and technical point, but I narrowly agree with the submission which Mr Brealey made on behalf of Mr Crehan that it could not. The argument is that sub-article 2 only applies to a case where by the beer tie the landlord (here Inntrepreneur) imposes an express obligation on the lessee (e.g. Mr Crehan) to purchase his supplies from a third party supplier which is identified as the supplier in the tying agreement. Inntrepreneur’s beer ties bound its lessees to purchase their supplies of beers from Inntrepreneur itself or from such other person or persons as it might nominate from time to time. Mr Brealey submits that that is too flexible and variable an obligation to come within article 6.2, and, as I have said, I narrowly agree with him.[219]This is a second reason why, if it mattered (which, if I am right on Delimitis condition 1, it does not), I would decline to hold that Inntrepreneur can take the benefit of the Block Exemption. That could have been a disadvantage to Inntrepreneur in the unusual context of a civil claim for damages for breach of article 81, but in most cases it would not matter much. As the observations of the Court of First Instance in the Joynson case (supra) indicate, an applicant for the benefit of the block exemption who fails on purely technical grounds can normally expect to be granted an individual exemption, as happened to Whitbread and Bass. In any case the block exemption provided for by Regulation no. 1984/83 has in the meantime been replaced by a new block exemption which is expressed differently and which leaves less scope for narrow technical arguments.[220]The other point which I wish to make about the Block Exemption before I move on arises from the words in article 6.1:
‘in consideration for according special commercial or financial advantages.’
It is argued on behalf of Mr Crehan that, by virtue of those words, the benefit of the Block Exemption, even if it would otherwise be available, is withheld if, in the events that happen, the tenant, or more probably the body of tenants generally, do not in fact receive any worthwhile special commercial or financial advantages. On that basis the case would presumably have to be looked at with hindsight. I am very doubtful whether that can be right, and I prefer not to express a view on this particular argument. I will, however, say that, subject to one point (but an important point), I accept that Inntrepreneur tenants did not receive most of the special commercial or financial advantages which the Commission, upheld in this respect by the Court of First Instance, considered to have been received by tenants of Whitbread or Bass. It was not Inntrepreneur’s policy that they should receive such advantages. Mr Ebdon said, as regards Inntrepreneur policy, that ‘it was very much a hands off situation; it was a stand alone business arrangement.’[221]The one point which I must add by way of qualification – possibly an important qualification – of what I have just said is that the theory of the tied Inntrepreneur lease was that the lessee would receive an advantage in the form or paying a lower rent than he would have paid if he had been free of tie. This is a somewhat hollow point in the context of this case, because, as the expert valuation evidence to which I have referred earlier shows, Mr Crehan in fact paid rents at levels which would have been appropriate for free of tie leases. However, I find it difficult to believe that, in so far as the reference to special commercial and financial advantages requires a factual examination at all, the examination can be expected to be performed, not merely with hindsight, but also individually on a tenant by tenant basis. Taking the Inntrepreneur estate as a whole and looking at it at the time when the leases, including the beer ties, were being negotiated and entered into, the theory was that, although the lessees were tied, they would get something in return in the form of lower rents than they would have had to pay if they had not been tied. I am inclined to think that that would be sufficient to refute this particular ground on which Mr Crehan seeks to argue that Inntrepreneur cannot bring itself within the Block Exemption, even though Mr Crehan himself was an exception to the norm and did not pay lower rents than he would have been charged to an untied tenant. I agree that Inntrepreneur cannot bring itself within the Exemption, but my reasons do not rest on the proposition that there were no special commercial and financial advantages.[222]There is nothing further which I wish to say about the Block Exemption. Other suggested Community law defences to Mr Crehan’s Community law claim[223]The major Community law issues are the three which I have considered already. Was Delimitis condition 1 satisfied? (Answer: no, therefore Mr Crehan’s claim fails.) Was Delimitis condition 2 satisfied? (Answer: it might have been if condition 1 had been satisfied, but since condition 1 was not satisfied this is of no value to Mr Crehan.) Did the Block Exemption apply? (Answer: no, so Mr Crehan’s action would not have failed on this ground.) There are three other arguments of a Community law nature which are advanced by Inntrepreneur as reasons why a Community law claim such as that which the CJEC held to be a possibility cannot be successfully advanced by Mr Crehan in the present case. If the arguments had mattered I would not have accepted them. I explain them and my reasons for not agreeing with them in the next few paragraphs.[224]Shared responsibility?Inntrepreneur argues that, if the beer tie provisions in its leases infringed article 81, the responsibility for the infringement was shared between Mr Crehan and Inntrepreneur to such an extent that Mr Crehan’s claim could not succeed. I do not agree. One of the questions referred to the CJEC by the Court of Appeal in this case was whether a claim for damages by a lessee (like Mr Crehan) based on the beer tie provisions in the lease could be defeated by the English law principle that a party cannot normally recover damages for illegality where he is himself a party to it. The answer given by the CJEC was: essentially no. But the court left a limited amount of room for a ‘shared illegality’ defence. It held that a claimant could be denied recovery if he bore a significant degree of responsibility for the illegality: Community law does not prevent national law from denying a party who is found to bear significant responsibility for the distortion of competition the right to obtain damages from the other contracting party. [Judgment paragraph 31][225]Counsel for Inntrepreneur argue that Mr Crehan was a voluntary participant in the transaction. He did not have to enter into the agreements for leases if he did not want to. That is true, but in my judgment it does not approach the sort of situation which the CJEC had in mind in the passage which I quoted above. The beer tie provisions were in the leases of The Cock Inn and The Phoenix because Inntrepreneur put them in its standard form of lease. Inntrepreneur at the time was not willing to take the provisions out of the leases, and it was not willing to consider any variations to them in negotiations with a prospective lessee or his advisers. There was no equality of bargaining power between Mr Crehan and Inntrepreneur. Indeed, the CJEC effectively recognised as much in a passage where it refers with approval to an observation which had been made to it both by the Commission and by the United Kingdom government: The Commission and the United Kingdom government also rightly point out that a contract might prove to be contrary to article [81](1) of the Treaty for the sole reason that it is part of a network of similar contracts which have a cumulative effect on competition. In such a case, the party contracting with the person controlling the network cannot bear significant responsibility for the breach of article [81], particularly where in practice the terms of the contract were imposed on him by the party controlling the network. [Judgment paragraph 34.][226]‘Mr Crehan was not an aspiring entrant to the market for the supply of beer to on-trade outlets.’ Inntrepreneur points out that article 81 is intended to protect would-be entrants to a national market, particularly entrants based in other Member States, from being confronted with excessive difficulties of entry into the market by reason of agreements which restrict or distort competition. Mr Crehan was not such a person: he did not want to make supplies of beer to pubs and other on-trade outlets. Therefore, it is argued, he cannot have a claim for damages for infringement of article 81.[227]In my opinion this argument by Inntrepreneur cannot stand with the CJEC’s decision in Mr Crehan’s own case. It would make the whole decision pointless. The CJEC was specifically considering whether a publican lessee (not, for example, a brewer based in another Member State) could have a claim for damages on the ground that his lessor’s conduct infringed article 81. By giving the answer that he could the court must have taken it for granted that this particular defence being put forward by Inntrepreneur could not be maintained. Otherwise the court would have been wasting its time, and would have known it. No realistic case in which the court visualised that a lessee might have a claim for damages would be one in which the claimant lessee was both a publican in one Member State and a brewer or distributor in another Member State. The same comment can be made by reference to the decision in Delimitis. Mr Delimitis had a café business in Frankfurt. His landlord was seeking to retain a rent security deposit which he had made. The CJEC did not, of course, decide the result of the case – it never does, but limits itself to answering questions of Community law referred to it by national courts – but it clearly contemplated the possibility that Mr Delimitis might be able to succeed against his landlord if the German court, applying to the facts the legal guidance given by the CJEC, concluded that the tie provisions in the particular lease were in breach of article 81. Mutatis mutandis, Mr Crehan is in a similar position.[228]‘Mr Crehan would not have purchased from suppliers in other Member States even if he had been free of tie.’ Inntrepreneur points out that to the extent that Mr Crehan was free of tie while in occupation at The Cock Inn and The Phoenix he made no attempt to purchase his supplies of beers from suppliers in other Member States. For his guest ale he chose Courage Best Bitter. When he was released from tie at The Phoenix he continued to make his purchases from Courage, except to the extent that for a time he purchased from a locally based wholesaler. Article 81(1) prohibits agreements which may affect trade between Member States, in so far as they restrict or distort competition within the Common Market. Because Mr Crehan did not himself wish to engage in trade between Member States it is argued that he can have no claim for damages under article 81.[229]I do not agree with this. In my view it would put a gloss on the decision of the CJEC in Mr Crehan’s own case which would not have been intended by the court, and which would substantially emasculate the decision. The decision of the court is that a person may have a claim for damages flowing from an agreement if two conditions are satisfied. The first condition is that the agreement is in breach of article 81. The second condition is that the agreement causes damage to the particular claimant. It is true that the agreement will only be in breach of article 81 if it may affect trade between Member States, but that is relevant to the first condition. I see no basis in the CJEC’s decision for somehow interpolating the factor of affecting trade between Member States into the second condition. That would be to read the court’s decision as if it said that a person who is harmed by an agreement which infringes article 81 has a claim for damages, but only if he himself wishes to engage in trade with other Member States and is prevented from doing so by the agreement. That is not what the court said, and in my opinion it is not what the court meant either. Did the beer ties cause Mr Crehan’s failure at The Cock Inn and The Phoenix?[230]This is the second major issue which was explored at length and in depth in the hearing. The first such issue was whether the Delimitis conditions were satisfied by reason of the beer tie provisions in Mr Crehan’s leases. Because of my decision that they were not (at least Delimitis condition 1 was not) it follows that this second issue is not critical to the result. If I agree with Mr Crehan on the second issue he still loses the case. However, the matters which bear on the second issue were fully gone into in the hearing. This case might go further by way of appeal from my decision, and I think that I ought to consider the second issue, which I do in this part of my judgment.[231]I first address a simple submission which was made on behalf of Inntrepreneur. Inntrepreneur points out, correctly, that Mr Crehan’s case is that what caused his failure was having to purchase his beers (except the guest ale) at the full, non-discounted, prices in the Courage price lists. Counsel say that the prices in the lists had nothing to do with Inntrepreneur, but were entirely the responsibility of Courage.[232]I accept the factual basis of the argument, but not the conclusion which is said to follow from it. It is true that it was Courage, and not Inntrepreneur, which determined the prices in the price lists. Indeed, the Beer Procurement Agreement included a provision, presumably inserted at the instance of Inntrepreneur, that Courage was obliged to price the listed products competitively. Counsel for Mr Crehan tried to make something of the provision in the Beer Procurement Agreement whereby Courage made payments in the nature of commissions to Inntrepreneur on its (Courage’s) tied sales to the Inntrepreneur estate. However, both Mr Williams and Mr Foster gave evidence, which I accept, that these payments were not inserted in order to give to Inntrepreneur a cut of inflated prices at which Courage made tied sales to Inntrepreneur tenants. They were not large sums in the context, and they were part of the balancing mechanism intended in a complex legal structure to give effect to an overall commercial deal which had been struck between the Grand Met group and the Elders/Fosters group. Further, the prices in the Courage lists were not inflated. It is true that Inntrepreneur tied lessees did not get the sorts of discounts which free trade operators were able to negotiate, but Courage’s listed prices were fully comparable and competitive with the listed prices of other major brewers.[233]Nevertheless I do not accept this argument. My reason is that, although it was Courage which fixed the prices in the price lists, it was Inntrepreneur which bound Mr Crehan and other tied tenants to make their purchases from Courage, and at the prices in Courage’s lists. It is true that, on each occasion when Mr Crehan placed an order with Courage, there was a contract between him and Courage, but the master contract under the umbrella of which all the individual contracts between him and Courage came into existence, was the beer tie. That was an agreement between Inntrepreneur and Mr Crehan, not between Courage and Mr Crehan. Mr Crehan’s complaint is that he could not obtain beer supplies at discounted prices because Inntrepreneur, in breach of article 81 (or so the argument runs), required him to buy his supplies from Courage at Courage’s list prices. In my judgment, that is the answer to this particular argument advanced by Inntrepreneur.[234]So I move on now to consider the substantial issues on this part of the case. As I have said, Mr Crehan asserts that what caused his failure was having to pay Courage’s list prices. He says that, if he could have obtained his supplies at discounts as his free trade competitors could, he would have survived. He said in oral evidence that if he had been free of tie: ‘I would have succeeded and I would have been in my pubs today pulling beer.’ [Day 8 p.111] Counsel for Inntrepreneur did not question the sincerity of Mr Crehan’s belief in that respect. They submitted, however, that he was mistaken, and that even if Mr Crehan had not been bound by the beer ties in his leases his business venture at the two pubs would still have failed.[235]Putting the point the other way round, the arguments in the hearing tended to revolve around the following question: if Mr Crehan had been free of tie, would he have survived? Inntrepreneur’s answer, supported by expert evidence from Mr Haberman, is that he would not. Mr Crehan, on the other hand, is convinced that he would have survived, and expert evidence to that effect was given on his behalf by the accountancy expert, Mr Main. My view (very much on the balance of probabilities, and not something on which I am confident that I am right) is that he would have survived – just and with a struggle.[236]I can make the point here that it was tacitly accepted by both sides that the issue tends to revolve around whether Mr Crehan would have got through the first three years or so. Those were always likely to be the years of greatest difficulty for him. For the first two years there was a recession, which was obviously bad for businesses of all kinds. Further, it was in the first year of his tenancies that he was obliged to carry out potentially costly repairs to the pubs. To those costs would be added the costs of other improvements which Mr Crehan wanted to undertake anyway (like creating a beer garden on the island area behind The Phoenix). It was the costs of repairs which drove Mr Crehan into the expensive and, as it turned out, damaging financing transaction involving Bampton Finance and InnPlan. Even if Inntrepreneur would have allowed him extensions of time (as Mr Dowling did on Inntrepreneur’s behalf), there was a limit to how long they would continue. The rent reductions which Inntrepreneur agreed for the first year on account of the cost of the repairs which he was obliged to do were never going to cover the full costs. For those reasons the early years were the years of danger.[237]So I turn now to the question of whether Mr Crehan would have got through the difficult early years if he had been free of tie and had been able to buy his supplies of beer at discounted prices. There are many controversial points which arise in this connection, but one point which I think is relatively uncontroversial is that the immediate cause of Mr Crehan’s business failure was that both pubs failed by large margins to achieve the levels of turnover which had been predicted for them. The predictions had been based on information provided by Courage and adopted by Inntrepreneur for its purposes in fixing rents for the pubs. For The Cock Inn Courage’s surveyors, Messrs Gerald Eve, had assumed a barrelage of about 340 a year in a valuation which they made in January 1991. The barrelage actually achieved by Mr Crehan for his first year of trading was 197 or 201 (the statistical records differ). For The Phoenix Courage’s records showed that, for all past years except 1990 (which was regarded as a freak low year) barrelages of 400 or more had been consistently achieved. In Gerald Eve’s January 1991 valuation they adopted a barrelage of 420. Mr Crehan’s actual barrelage for his first year was 271, and he only achieved that with the assistance of high expenditure on providing entertainment in the pub on seven or eight occasions a week.[238]Mr Crehan had been optimistic, not just that he would attain the assumed barrelages (340 or so at The Cock Inn, and 400 or so at The Phoenix), but also that he would be able to increase them at both pubs, as he had done at pubs of which he had previously been the manager (like the Load of Hay at Bedfont). He may have been unrealistic in that expectation, given that there was a recession in progress, but it is very hard to suppose that the recession was the complete explanation for the dramatic under-performance at both of the pubs. Mr Neal (Mr Crehan’s accountant) said that his view in 1991 was that the businesses of the two pubs were viable but the rents were high. So what was the cause of the dramatic falls in the turnovers of the pubs? Mr Crehan is in no doubt about the answer: he is convinced that they were caused by the high prices which he had to pay for his beer and the correspondingly high prices which he considered that he had to charge to his customers, compared to the dramatically lower prices which competitors, especially The Angel, could pay to their suppliers and charge to their customers. Inntrepreneur disagrees. The case put to me on its behalf was that Mr Crehan was a poor manager of a business, and that the effective cause of the under-performance of the pubs while he was in occupation of them was his own shortcomings. Inntrepreneur also refers me to surveys of reasons why customers choose one pub rather than another. The level of prices charged in the pub is not the foremost factor. Clean bars, clean toilets, friendly staff and general comfort are ranked ahead of value for money and prices of drinks.[239]It is worth pointing out that one thing which Inntrepreneur has not argued is that, however good a businessman Mr Crehan may have been, he was bound to fail because the rents which he had to pay were so high that he never had a chance of making a success of the venture. Given that the rents were the amounts which Inntrepreneur required, and that Mr Ebdon told Mr Crehan that Inntrepreneur would not budge on them, any such argument would have been an unattractive one for Inntrepreneur to advance. Inntrepreneur has not advanced it, and I am not going to take account of it.[240]I am unconvinced by Inntrepreneur’s case that the dramatic downturn in the levels of sales achieved at The Cock Inn and The Phoenix must have been caused by mismanagement on the part of Mr Crehan. It is true that he had not previously had experience of running his own business, and I accept that (as Mr Haberman, Inntrepreneur’s expert accountancy witness, said) there is a significant difference between being the employed manager of a pub and being oneself the proprietor of the business. However, weight must also be given to some other considerations. Mr Crehan had always been a successful manager at other pubs: turnovers had increased under his management. Mr Ebdon told him that there were many other applicants for the lease of The Phoenix, but Inntrepreneur chose Mr Crehan. I was shown Inntrepreneur documentation in which the company preened itself on the thoroughness of its selection procedures. Mr Neal, the accountant who had a lot of experience of acting for tenants of pubs, said in his witness statement:
‘My impression was that the Crehans were good, professional operators.’
[241]Mr and Mrs Crehan certainly appear to have been well liked by customers who used their pubs. Several customers gave evidence. I quote a few extracts. ◦ Mr Ladlow, a window cleaner. ‘Before Bernie and Dolores Crehan took over the pubs in 1991, I used to go to The Phoenix and The Cock Inn on Church Street, Staines, only very occasionally. They were different sorts of pubs to each other. The Cock used to be a locals’ pub, often filled with Irish lads. Before the Crehans, The Phoenix was just a pub, nothing out of the ordinary. … I knew Bernie and Dolores Crehan when they were running The Phoenix and The Cock between 1991 and 1993. I used to clean the windows at both their pubs all the time they were running them. As soon as they took them over, the Crehans really did try to make their pubs better. They refurbished both The Cock and The Phoenix. They built a lovely garden at The Phoenix with a barbecue and family area. … The Crehans made children very welcome. … The Crehans were genuinely nice people. They made you feel welcome. They tried very hard at The Phoenix and The Cock. They brought the pubs up. … [W]hen you went into Mr and Mrs Crehan’s pubs, either of their pubs, it was a totally different thing. It was not all plastic and glass, it was wood panelling, a coal fire, the food was all fresh .. . … As I say, when you went in there you were not just a customer. They did go out of their way to make you feel welcome.’ ◦ Mr Voyce, a semi-retired road haulier who had become friendly with Mr and Mrs Crehan when they were at The Load of Hay, and who used to patronise The Cock Inn and The Phoenix after the Crehans had moved there:
‘[With reference to the Load of Hay period] Bernie and Dolores were a good team. Bernie was an excellent publican and ran a good pub. He was popular with customers. He talked to them and treated them as friends. The pub became progressively more busy during the period I was drinking at the Load of Hay and the Crehans were running the pub. … The Cock remained a lovely pub whilst the Crehans were running it. … The Crehans were nice people and the pubs had a nice atmosphere.’ ◦ Mr White, a builder who got to know Mr and Mrs Crehan at the Load of Hay: ‘The Load of Hay was a well run pub in those days. Dolores did good food … The Crehans were very popular with the customers. … The Cock was a good pub. I knew and liked Bernie and Dolores. My friends liked them as well.’ ◦ Mr Neal, the accountant who used to visit Mr and Mrs Crehan at The Cock Inn (not usually at The Phoenix) and who observed them in their working environment: ‘I do remember though that Mr Crehan was a popular publican. He spoke to the customers and spent time with them. I recollect Mr Crehan being proud of what he had done for the garden at The Phoenix. I can also remember that Mrs Crehan’s food was good (because I had some).’
[242]None of the foregoing suggests that Mr Crehan would have been the sort of pub landlord who, by reason of his own personality or incompetence, would have caused a disastrous fall in the level of turnover. There was virtually no evidence to the effect that Mr Crehan was not a good pub landlord. The only item was one paragraph in the witness statement of Mr Foster. Courage’s head office used to be near The Cock Inn, and Mr Foster, speaking of his time with that company before he moved to become chief executive of Inntrepreneur, said that the pub was not welcoming, poorly decorated, of low quality and dirty. However, it emerged in his oral evidence that these were impressions which he had formed on the basis of a handful of visits earlier rather than later in his tenure of office as Managing Director of Courage. I believe that they related to a time before Mr and Mrs Crehan had moved to The Cock Inn and The Phoenix from the Load of Hay.[243]Inntrepreneur’s criticisms of Mr Crehan as a proprietor of the business were not based on evidence of persons who had personal experience of him at the time, but rather on expert evidence given by Mr Haberman. Mr Haberman criticised a number of business decisions which Mr Crehan had made. He said that, on his estimates, Mr Crehan probably spent more on providing entertainment at The Phoenix than the extra sales revenue which the entertainment attracted. (Mr Crehan did not agree, nor did Mr Main, the expert accountancy witness for Mr Crehan.) Mr Haberman said that Mr Crehan ought to have done work at an earlier date on refurbishing the underused function room at The Phoenix, instead of leaving the work to be done later, with the result that he never got round to doing it at all. Mr Haberman advanced some other management criticisms of a similar nature, such as that Mr Crehan ought to have experimented with a ‘happy hour’. Mr Crehan resolutely defended himself when the various criticisms were put to him. I do not feel capable of reaching firm views on whether Mr Haberman’s criticisms (or some of them, and if so which) are justified or not. They strike me as raising difficult issues of business judgment, on which different businessmen might reasonably reach different conclusions. I am certainly not prepared to say that, by reason of the points which Mr Haberman made, it can be said that Mr Crehan was an incompetent businessman who was bound to fail regardless of whether he was bound by a beer tie or not. It is, I think, worth reminding myself that what I am looking for is not instances of what might have been business misjudgments by Mr Crehan, but rather evidence that Mr Crehan was so bad a publican that he would drive business away from his pubs to a degree which would account for the dramatic losses of turnover which he experienced in his first year of trading. There is nothing of that sort in Mr Haberman’s expert report.[244]There is one other specific criticism which Mr Haberman has made on which I do wish to make rather fuller comments. The criticism is that in the first year of trading Mr Crehan allowed excessive drawings out of the business bank account to be made by himself and Mr Carroll for non-business purposes. I think that there may be an element of validity in this point, and I suspect that, if Mr Crehan could start all over again now, knowing what he has learned from his experience in the 1991 to 1993 period, he would exercise tighter control over drawings. Nevertheless it must be remembered that Mr and Mrs Crehan and Mr Carroll had ordinary living expenses to meet in the first year of trading, and that the pubs were not in practice yielding a positive income flow out of which the those expenses could be met. Mr and Mrs Crehan and Mr Carroll did not have other incomes at the time out of which they could meet their living expenses (in Mr Carroll’s case largely because he was devoting his time to doing building and repair works in The Cock Inn and The Phoenix), so that if they were not going to starve they had to resort to the money in the business bank account (money which traced back ultimately to Mr Carroll’s win in the Irish lottery). As Mr Main said in oral evidence, Mr Crehan was not lavishing the drawings on himself and his wife: he was living on about £100 a week.[245]A significant part of the drawings seems to have been applied in servicing the mortgage and meeting the running expenses of the house which Mr and Mrs Crehan had recently bought at Bedfont. With hindsight Mr and Mrs Crehan might have been better advised to have disposed of the house, so freeing themselves from the financial burdens of continuing to own it: they could have lived in the living accommodation at The Cock Inn and The Phoenix, and their two sons could have lived there as well if they wanted. However, it is understandable that, when they took on the two pubs, it did not occur to them that they would not be able to afford to keep the house. Mr Crehan said in oral evidence: "I thought that if the two businesses I went into were going to be as successful as I thought they would be … there would be no problem about paying the bills out." [Day7 p.23][246]In any case, I repeat the point that I am concerned on this part of the case with something more specific than generalised indications of alleged managerial shortcomings on Mr Crehan’s part. I am concerned with forming a view on what it was that caused a disastrous fall in the expected turnovers of The Cock Inn and The Phoenix in Mr Crehan’s first trading year. Identifying what caused that fall is not easy, but I assert with some confidence that one thing which did not cause it was the fact that Mr and Mrs Crehan and Mr Carroll had been making drawings from the business bank account.[247]I would now like to comment on the factors other than price which may lead customers to choose one pub rather than another. I am sure that most customers do think that factors like clean bars and toilets, and friendly staff, are as important as or more important than price. However, in my opinion there can be no suggestion in this case that it was because of factors of that nature that many of the drinkers of Staines took their business to other pubs (like The Angel) rather than to The Cock Inn or The Phoenix. I quote from Mr Crehan’s witness statement:
"In the first few months we concentrated on redecoration of the exterior, the refurbishment and redecoration of the interior of both pubs, the improvements to the kitchen of The Cock, and the garden at The Phoenix. These works were an essential priority to boost the trade. Obviously, customers are more likely to come into a pub that is bright and freshly decorated. … We put in new mahogany faces on the bar counters, re-varnished the tables, steam cleaned the carpets, had the chairs recovered and put in new curtains. We redecorated both buildings throughout. We also had the toilets refurbished and hand dryers installed."
I have already quoted extracts from evidence of customers which show that they appreciated the efforts which Mr and Mrs Crehan had made in these respects: see paragraph 241 above. The same extracts also confirm that Mr and Mrs Crehan’s pubs were friendly pubs where customers felt welcome.[248]At this point I draw some threads together. In Mr Crehan’s first year the pubs performed way below expectation. Why? The recession may have had some effect, but cannot have accounted for most of the fall in turnover. Management failures by Mr Crehan, to the extent that they existed at all, would not have caused the downturn in trade. All the evidence suggests that the physical condition of the pubs and the atmosphere within them did not cause it either. So what did cause it? It appears to me that the most likely answer is: the effect of highly damaging price competition. I cannot see any other realistic explanation. In this connection I quote the measured and cautious observations of Mr Main, the expert accountancy witness for Mr Crehan. "3.05 There are numerous factors which can affect the level of turnover that a pub achieves. These include location, ambience and décor, the availability of food, whether entertainment is offered, etc. Price is also a factor. 3.06 Customers will generally be prepared to pay more for the same product offered by a competitor at a lower price, if other factors lead them to be attracted to one pub over another. There is, however, a limit to the additional price the customer is willing to pay depending on the importance they place on those other factors. 3.07 It is outside the scope of my expertise to carry out an assessment of the extent to which price rather than other factors affects the turnover achievable. It is, however, a matter of common sense that the larger the price differential on similar product offerings, the greater the need for alternative attractions offered by the pub selling at higher prices to sustain the same level of custom as the pub selling at lower prices."[249]There was also other factual evidence to which I should refer. Staines seems to have been quite a heavy drinking area, and I heard evidence about the habits of regular drinkers there in the period when Mr and Mrs Crehan were at The Cock Inn and The Phoenix. I listened with a mixture of apprehension, admiration and alarm to accounts of the volumes which they consumed nightly. The following extract from the oral evidence of one of them, Mr Dyckhoff who was a young man in his early twenties at the time and a friend of one of Mr and Mrs Crehan’s sons, gives some impression. I should explain that ‘down there’ means ‘down at The Cock Inn or The Phoenix’:
"Put it this way. I fast-forwarded seven to ten pints in The Angel. I save money by the time I get down there. I will not need as much when I get down to The Cock or The Phoenix."
Mr Dyckhoff made the point that the price of the beer across the bar was important to him and his friends, and made a difference to where they would go on their regular drinking sessions. In his witness statement he put it this way:
"The price of the beer at The Phoenix and Cock was important to my friends and me. As I have said, I knew Bernie. I remember putting my arm round Bernie’s shoulder and saying to him on several occasions that he should reduce his prices to the same level as the Angel. He told me he could not do it. He said that he would reduce his prices if he could have done, but he was not able to. … The music at The Phoenix started at about 7 p.m. in the evening. We would have wanted to have arrived at the pub earlier if the beer had not been so expensive. The only reason that we did most of our drinking at the Angel was because the beer was so much cheaper."
[250]This last point (that people drank in The Angel rather than in The Cock Inn or The Phoenix only because the prices were cheaper) was made in the evidence of most of the regular drinkers who gave evidence. There were five such witnesses, covering a range of age groups. Mr Voyce, of an older generation than Mr Dyckhoff, liked The Cock Inn much more than The Angel, but he and his friends did most of their drinking in The Angel because of the price differential:
"My friends would moan about the price of the beer at The Phoenix and Cock. I had to struggle to get my friends to go there. … For the lot of us it could make a difference of £25 to £30 in an evening. The price of the beer was an issue with my friends. … As a result we limited our drinking at The Phoenix and the Cock to the last couple of pints at the end of an evening."
Mr White said much the same thing:
"However their [the Crehans’] beer was so much more expensive that we could not afford to stay the whole evening at their pubs. As I say, we would each save £3 or £4 or more an evening by doing most of our drinking at the Angel rather than the Cock (or The Phoenix). This meant that two of the pints for each of us at the Angel were free."
Mr Ladlow said that beer at The Phoenix and The Cock Inn was 40p or 50p more expensive than the Angel, so it made a real difference to his friends and him. They were, and are, working people and the price did make a difference.[251]The other witness in this group was Mr Muldowney. He is an interesting witness because he did not know Mr Crehan at all until shortly before the present hearing. In the 1991 to 1993 period he owned a haulage business, and on several evenings he used to take some of his drivers to Staines to buy them drinks. He used to go to The Angel because the beer was so much cheaper than in the other pubs. Given that he could be buying seven or more rounds of drinks for several drivers it could save him £25 or more an evening. He thought that The Phoenix was a more comfortable pub than The Angel, but he did not use it to entertain his drivers because of the price levels.[252]There was more evidence to the same effect from publican witnesses from various localities. Mr Barber of the Royal Oak in Teddington said that, until the pub went free of tie, he and his partner lost many customers to neighbouring pubs which were free of tie. Mr Johnson of The Two Puddings in Stratford East said that in the long run the customers went where the beer was cheaper. Mr Rayner, an experienced publican in the Staines area, said that it was the cheap beer prices which really attracted customers to the Angel. ‘The average working drinker will go to where the beer is cheaper.’ A comment made by a director of the company which used to own the Angel that pub customers were not price sensitive was, in Mr Rayner’s experience, ‘complete nonsense’. Mr Bayliss of The Boot Inn in Sutton Coldfield said that people were very cost conscious: they would ‘disappear if you overpriced your own outlets’. I have already referred to the evidence of Mr Foster (an Inntrepreneur witness), and I refer to it again, that to have two tenants in one street, one of whom was tied and the other of whom was not, was ‘an unfortunate distortion’.[253]I ought to say that, although the general thrust of the evidence, both from customers and from publicans, was as I have outlined in the foregoing paragraphs, the evidence was not entirely one way on the issue. In particular Mr Adams, the director of the company which operated The Hobgoblin, was not in favour of a cheap prices policy, except on occasional promotional exercises. In his view low pricing is not the answer to a successful pub: with low prices one tends to get trouble. It did incidentally appear that there had on occasions been problems at The Angel, leading to difficulties on one occasion with the police and the Licensing Justices.[254]In the circumstances which I have described in the foregoing paragraphs I accept Mr Crehan’s case that the reason why there was such a dramatic fall in the turnovers of The Cock Inn and The Phoenix was because the prices which he charged for beer sold to customers were uncompetitively high, and in consequence he lost too much business to other pubs, especially The Angel. I am not saying that his pubs were empty for a lot of the time, but they did not remotely achieve the levels of turnover which would have been required for them to be profitable, given the level of rents which Mr Crehan was obliged to pay. Inntrepreneur had assumed turnover at higher levels when it was considering the rentals at which it would be willing to let the pubs to Mr Crehan, and it is not surprising that, when the assumed turnover was not remotely achieved, the pubs made losses and not profits.[255]What I have said so far does not automatically mean that, if Mr Crehan had been free of tie, he would have survived. There is another question, or set of questions, to be considered. If Mr Crehan had been free of tie, and therefore could have purchased his beers at discounted prices comparable to those charged to his competitors like the Angel, what would Mr Crehan have done? Would he have reduced his prices to customers? If so by how much? And how much difference would it have made? I observe at this point that much of the evidence and arguments on this issue is relevant not only to the question which I am considering now (whether Mr Crehan would have survived if he had been free of tie throughout), but also to the later questions of quantum: what amount of loss did Mr Crehan suffer by reason of being tied rather than free of tie at both pubs from the beginning?[256]Mr Haberman’s evidence on behalf of Inntrepreneur proceeded on the basis that, apart from buying his beers at lower prices, Mr Crehan would have done everything else exactly as he in fact did in the two years or so when he was at the pubs. For example he would not have reduced his prices for beer across the bar, and he would still have spent large sums of money to provide entertainment at The Phoenix. On that basis Mr Haberman says that Mr Crehan would still have failed. Mr Main provided his estimates on three different assumptions, all of which realistically pre-supposed that, if Mr Crehan had been free of tie, he would have paid significantly lower prices for his supplies of beer. One of Mr Main’s assumptions (‘Scenario 1) was essentially the same as Mr Haberman’s assumption. The other two (‘Scenarios 2 and 3’) involved assumptions of two different ranges of lower prices which Mr Crehan might have charged to his customers across the bar. With those two assumptions of lower bar prices Mr Main linked consequential assumptions about the effects of the lower prices on the levels of sales. Reducing prices is only of any value if it generates increased turnover which more than compensates for the reduced profit margin on each pint sold. The scenario which Mr Main thought the most likely was Scenario 3, under which Mr Main assumed that Mr Crehan would have reduced his beer prices to an average of about £1.20 per pint (higher of course on lager but lower on bitter), and that the effect would have been that in his first year of trading (the year to 10 July 1992) his barrelages would have been 330 at The Cock Inn and 400 at The Phoenix.[257]So the first question I ask myself is: if Mr Mr Crehan had been free of tie and had bought his supplies of beer at the large discounts which were available to free trade buyers, would he have reduced his prices to customers? In my opinion the answer is: yes. Mr Crehan said in his evidence that he would have done that, and in my view what he said was convincing. Mr Main had discussed the matter with him, and Mr Main believed that Mr Crehan would have reduced his prices. In my opinion Mr Main was a cautious expert witness (as also was Mr Haberman), and I do attach weight to the conclusions which he drew from his conversations with Mr Crehan. As things actually were in 1991 and 1992 Mr Crehan was convinced that what was wrecking his business was his inability to compete with the prices which The Angel charged to its customers. It seems to me inherently likely that, if he could have made his purchases at prices which gave him scope to charge more competitive prices, he would have charged more competitive prices. I also remind myself that the actual prices which he charged were based on the advice which he was given by his accountant, Mr Neal. I am sure that Mr Neal, in working out what advice to give, took account of the undiscounted prices at which Mr Crehan would actually have to buy his supplies. If Mr Neal had been working on lower prices for supplies, I believe that the bar prices which he would have recommended would also have been lower, and I also believe that Mr Crehan would have been guided by Mr Neal’s advice.[258]It is true that, when The Phoenix went free of tie in November 1992 so that Mr Crehan could obtain supplies for that pub at discounted prices, he did not reduce his bar prices. However, I think that the truth is that Mr Crehan was already in a parlous financial situation by then, mainly flowing from losses in the first year of trading at The Cock Inn. Mr Main commented that Mr Crehan was in a very different position in late 1992 from the position he would have been in if he had been purchasing at discounts from the start of his occupation of the pubs and had felt that he could experiment with lower prices. There is also the further point that, soon after he became free of tie at The Phoenix, Courage required him to pay in advance for his supplies, which in practice led him for some time to make purchases from a wholesaler, in breach of the tie, at prices which were higher than the discounted prices which free trade purchasers could obtain from brewery suppliers like Courage.[259]I next ask whether, if Mr Crehan had reduced his prices to the sort of levels which Mr Main contemplated in his Scenarios 2 and 3, I agree with the consequential assumptions which Mr Main has made about the extent to which turnover would have been increased. The answer is that I do. Having concluded earlier that the main reason for the disastrous downturns in level of trade at the two pubs was that Mr Crehan was charging something like 40p or 50p a pint more than some competitors, especially The Angel, I think that the logical corollary is that there would not have been anything like the same downturns if he had charged prices which, though perhaps not fully matching The Angel’s prices, were nevertheless within, say, 10p a pint of them. (I have mentioned earlier that there was a general consensus of several witnesses that price differentials of up to 10p a pint did not have much impact on turnover, but when the differential was, for example, more like 40p a pint, the more expensive pub did suffer competitively.) I am prepared to accept Mr Main’s assumptions of what the levels of increased turnover would have been. With reference to Mr Main’s evidence generally Mr Brealey (who presented the closing submissions on this part of the case on Mr Crehan’s behalf) said:
‘We say he is a very reasonable, prudent and careful man, and we ask your Lordship to accept his report.’
I think that that was a fair and justified evaluation of Mr Main. On many matters where there was a choice to be made between assumptions Mr Main consistently made the more prudent assumption, and I found his evidence both measured and helpful.[260]Mr Main also assumed that, at least on his Scenario 3 – the Scenario with the largest reductions in prices and the largest increases in turnover – Mr Crehan would have been able to take, and would have taken, a business decision to spend less on entertainment at The Phoenix. I agree with that. Mr and Mrs Crehan had originally intended to provide some entertainment at The Phoenix, but not as much as they felt compelled to provide – at substantial expense – when they found that the turnover at the pub was not nearly up to their original expectations. If, being free of tie so that they could reduce their prices across the bar, they did achieve a turnover more in line with their original expectations, I would have expected them to provide entertainment at the more modest level which they had originally contemplated.[261]There are two further assumptions which I wish to mention. The first is that I am prepared to assume that, in the particularly difficult first year when Mr Crehan ought to have been spending large sums on repairs, he and his wife might have seen the business basically going well, but nevertheless running out of cash rather faster than they had envisaged. In that situation, although I do not think that either of them specifically said this in evidence, it seems possible to me that they would have taken the hard decision to sell the house in Bedfont which they had recently bought. The mortgage on the house and the running costs were obviously a drain on the cash which would otherwise have been available for the pub. If it came to a point where Mr and Mrs Crehan could see a bright future for the pubs in a few years time, but could not in the short term keep both the pubs and the house, I think that they would have sold the house in order to keep the pubs. There was accommodation at both The Cock Inn and The Phoenix, and they could have used it. Indeed, from July 1991 they did live in the pubs – initially I believe in The Cock Inn – and the house was used at that time mainly as somewhere for their sons to live. I believe that the sons could have lived in the pubs instead, or could have found somewhere else to live. If that might have made the difference between the business getting through the first few years or not, in my view the strong probability is that that is what the family would have done. Mr Main calculated that, on his Scenario 3, Mr and Mrs Crehan could have survived at the pubs even without selling the house. He may be right, but the point which I make here is that, if they were struggling to keep the house and the pubs, they could always have sold the house.[262]The second further assumption which I must mention concerns the level of rents which Mr Crehan would have been liable to pay for The Cock Inn and The Phoenix if they had been let to him free of tie. Counsel for Inntrepreneur submit that the rents would have been several thousand pounds a year higher, because of the general proposition that the market rents for free of tie pubs are higher than the market rents for tied pubs. I accept the general proposition, but I am not prepared to apply it in this case in the way that I am requested. I have recorded earlier that, on the evidence of both valuation experts, the actual rents which Mr Crehan paid were already up to the levels of market rents for free of tie houses: see paragraphs 138 and 140 above. Why should I assume that he would have paid more? Mr Lewison says that if, as appears to have been the case, Inntrepreneur asked for rents for the pubs which were too high for them as tied houses and Mr Crehan agreed to pay them, I should assume that Inntrepreneur would also have asked for rents which were too high for the pubs as free houses and Mr Crehan would have agreed to pay those rents. I find this an unattractive submission, and I am not prepared to evaluate the questions of whether Mr Crehan would have survived and, if so, what his recoverable loss might be, on the assumption that, if he had been free of tie, he would have been paying to Inntrepreneur rents which were appreciably higher than the market rents.[263]Reviewing all of the foregoing matters I come on the balance of probabilities to the conclusion, in agreement with the opinion of Mr Main, that, if Mr Crehan had been free of tie throughout and had been paying a market rent for free of tie pubs, not an inflated rent for free of tie pubs, his business would have survived the first three critical years. He and his wife might have had to give up their house in Bedfont, and I think that survival of the business would have been a close run thing. But I do think that Mr Crehan would have survived – just – and, if I was in favour of him on the issue considered earlier of whether the beer ties in his leases infringed article 81, I would conclude that the infringement of the article did cause the failure of the business and thus caused losses to Mr Crehan.[264]Two matters remain to be considered. What would the quantum of any recoverable loss be? Would it all be a loss suffered by Mr Crehan, or would half of it be attributable to Mr Carroll on the basis that the business was not wholly owned by Mr Crehan but rather was owned by a 50/50 partnership between him and Mr Carroll? Quantum[265]At this stage I will assume that there was no partnership between Mr Crehan and Mr Carroll.[266]In the particulars of claim damages are claimed under two heads. One head is loss of profits suffered by Mr Crehan in consequence of being tied. This includes recovery of losses actually suffered by Mr Crehan which he would not have suffered if he had been free of tie throughout. The other head is the loss of capital assets, namely the two leases which Mr Crehan claims that he would still have had if he had not been tied and constrained to surrender them for no consideration in consequence of the trading losses. In each case an important and difficult question arises. At what date do the losses fall to be measured? Should they be measured at the two dates when Mr Crehan surrendered the agreements for leases, with judgment also for interest over the intervening ten years between the surrenders and judgment? Or should they be measured at the date of judgment?[267]I accept that the normal rule is that damages are assessed at the date of loss, not at the date of judgment, and that it is assumed that interest will compensate the claimant for the passage of time between the time when he suffered his loss and the time when he gets judgment in respect of it. However, I believe the legal position to be that that is not an invariable rule of law, and that if the justice of the case requires damages to be measured at the date of judgment the court may award damages on that basis instead. This can arise, for example, in times of high inflation when interest would not be any form of acceptable compensation. In my judgment, if Mr Crehan was entitled to damages at all (which, for the reason which I have given earlier, turning on Delimitis condition 1, he is not), damages measured at 4 March 1993 (The Cock Inn) and 27 September 1993 (The Phoenix) plus interest would not be adequate compensation. Any profits which he would have made on a free of tie basis by then would have been modest at best. In this context I refer to my earlier observations to the effect that, although I think on balance that Mr Crehan would have survived if he had been free of tie from the outset on both pubs, it would have been a close run thing. The early years of his occupation of the pubs were always going to be tight in terms of profitability. The financial benefits to him if all had gone well would not have arisen in the first two years, but only in later years when he had got through the early expenditures and had been able to build up the trades of the pubs. Similarly, although the two leases would have had some capital value in 1993 if everything had progressed well, the values would not have approached those which might have been expected ten years or so later. I also take into account that the long interval from 1993 to now has been largely brought about by Inntrepreneur, not by Mr Crehan. The case made no progress during the years occupied by Inntrepreneur’s notification to the Commission (which was ultimately abortive). Further years passed because of the time taken over the preliminary issues which Master Moncaster directed to be tried (as described in paragraph 125 above). I believe that the initiative for having preliminary issues determined came from Inntrepreneur, not from Mr Crehan.[268]I therefore consider that in this case the measure of damages should be ascertained at the time of judgment, not at the two dates in 1993 when Mr Crehan had to give up the agreements for lease of his two pubs. With reference to ‘the time of judgment’ Mr Main’s reports have estimated profits down to 10 February 2003, and I intend to work by reference to that date. Given the background to this case and the ten years which have already elapsed since Mr Crehan gave up the pubs, I do not think that anyone will wish to take the exercise the four or five months further which would go to the date when I actually deliver this judgment.[269]I should add that in my view what I have said in the foregoing paragraphs applies to The Phoenix as well as to The Cock Inn. It does not make any difference that Mr Crehan was released from tie at The Phoenix on 1 November 1992. Counsel for Inntrepreneur submitted that Mr Crehan could not in any event claim damages for loss of profits (or for recovery of losses actually suffered) at The Phoenix after that date. I do not agree. If Mr Crehan was entitled to damages for the loss of profits caused by his having been tied in breach of article 81 and such losses continued to be suffered by him after the tie had ceased, his damages would include all the losses attributable to his having been unlawfully tied, including losses so attributable which carried on being suffered after the unlawful tie came to an end.[270]The first head of damages claimed – the head for recovery of losses actually suffered and of profits which would have been made on a free of tie basis – involves estimating the difference between the losses which Mr Crehan actually suffered during his periods of occupation of the pubs and the profits which he would have made if he had been free of tie throughout. Given what I have said in the two preceding paragraphs, the latter profits (the hypothetical free of tie profits) should be the profits from the pubs(1) over both the periods when Mr Crehan was actually trading in them and(2) over the periods from when he left the pubs until 2003.[271]Estimating the profits which Mr Crehan would have made on a free of tie basis involves the making of assumptions. In this connection I have previously identified several assumptions which, generally following the evidence of Mr Main, I have been prepared to make in reaching the conclusion that, if Mr Crehan had been free of tie, he would have survived the critical early years of trading. Those assumptions are equally relevant to the exercise which I am undertaking now. The critical assumptions are: Mr Crehan would have charged lower prices for beer across the bar to customers, along the lines assumed by Mr Main in his Scenario 3; there would have been increased sales of beer in response to the lower prices; Mr Crehan would have continued to put on entertainment at The Phoenix, but not as much as he actually put on; and the rents charged to Mr Crehan for free of tie leases would not have been greater than the actual rents for the tied leases. On the last point it will be remembered that, although in principle one would have expected rents for free of tie leases to be greater than rents for tied leases, in this case the expert valuers (though not exactly in agreement with each other) are both of the opinion that the rents which Inntrepreneur required Mr Crehan to pay were at levels which would have been appropriate for free of tie leases. I am not prepared to assume that, because Mr Crehan was asked to pay and did pay rents which were above market levels for rents of tied pubs, he would also have been asked to pay and would have paid rents which were above market levels for rents of untied pubs.[272]I need to enlarge on the assumptions to some extent, but I am not going to go into these aspects of the case in the degree of detail which in other circumstances I might have adopted. For example, in so far as it is assumed that Mr Crehan spent money on providing entertainment at The Phoenix, there are consequential assumptions to be made about how much income from gaming machines and the pool table would be lost while the entertainment was in progress. Mr Main went into this matter and others of a similarly detailed nature in depth, and in some respects Mr Haberman made perceptive comments of his own on certain assumptions which Mr Main made. However, if my decision about Delimitis condition 1 is correct these matters are academic anyway. Further, a lot of the substantial expenditure which has been put into this case has been incurred on the basis that the case is a test case to resolve questions of principle which are likely to arise in the hundreds of other cases which are awaiting the outcome.[273]In the circumstances I hope that it will be acceptable for me not to pursue every computational detail which the experts have explored in the hypothetical exercise of estimating what profits Mr Crehan would have made if he had been free of tie. I will largely adopt and follow the figures put forward by Mr Main. I should add that in doing so I am not really preferring Mr Main’s detailed analyses to those of Mr Haberman. Mr Haberman proceeded on the basis that, if Mr Crehan had been free of tie and so had been able to buy his beer supplies at discounts, he would not have reduced his prices across the bar to customers. He also proceeded on the footing (in accordance with his instructions) that he should not consider anything affecting The Phoenix after 31 October 1992, the date when the pub was released from tie. In truth, although Mr Main and Mr Haberman were both accountancy experts, they focused on different areas in their reports. Mr Haberman was mainly concerned to identify and describe management shortcomings on Mr Crehan’s part in the actual operations of the two pubs. Mr Main concentrated on the hypothetical calculations of what would have been the trading results if Mr Crehan had been free of tie.[274]With specific reference to Mr Main’s assumptions, he assumed a Scenario 3 barrelage in the first trading year of 330 at The Cock Inn and 400 at The Phoenix, which I am prepared to adopt. He assumed alternatives for the second actual trading periods at the annual rates of either 330 and 400 (as before) or 363 and 440 (a 10% increase). The theory behind the second alternative was that, after one year in occupation, Mr Crehan would be able to increase turnover by 10%. He might have done, but I think that it is a highly conjectural assumption to make, and I would not make it. I would proceed on the basis that the annual barrelage rates of 330 (The Cock Inn) and 400 (The Phoenix) would have carried on for another year. In 1992 the recession was still going on, so Mr Crehan would have done well to maintain the first year’s level of turnover, let alone increase it.[275]I do wish to comment on one other assumption which Mr Main has made in connection with Scenario 3. He has assumed that Mr Crehan would in the first year of trading have completed all the works of repair which he was required to do by the two agreements for lease. On behalf of Inntrepreneur Mr Lewison submitted that that was an unlikely assumption. Mr Lewison may be right in that respect. However, I believe that, if Mr Crehan had been free of tie and trading had been progressing reasonably satisfactorily (as Scenario 3 assumes), he would at some stage, even if not in the first year, have completed the repairs. It was clear from his evidence that he was very much aware of his obligation to do the works, and understood that if he did not do them he was at risk of having the pubs taken away from him. He would not have forgotten about his obligation, or remembered about it but disregarded it. Further, I believe that for a time Inntrepreneur would have been prepared to give him time to complete the works, as in practice Mr Dowling did. In any case, Mr Main’s assumption that Mr Crehan would have done the works in his first year of trading is in one sense an assumption adverse to Mr Crehan, because it assumes that he has to raise the money and spend it sooner rather than later. The key point is not so much one of when exactly Mr Crehan would have done the works, but of whether, if free of tie, he would have done them at some time which would have been acceptable to Inntrepreneur. I believe that he would.[276]I now move on to the detailed estimate of the profits which Mr Crehan would have made if he had been free of tie. Mr Main has prepared his estimates in two stages: first for the actual periods when Mr Crehan was in occupation of the pubs; second from the ends of those periods to 10 February 2003. The figures are helpfully summarised in a schedule to the written summary of counsel’s closing submissions. The schedule gives two sets of figures, described as Situation 1 and Situation 2. Both situations assume the same barrelages in the first year (330 for The Cock Inn and 400 for The Phoenix – figures which I have mentioned several times already), but Situation 1 assumes no change for the period after that until the end of actual trading, whereas Situation 2 assumes an increase of 10% to annual barrelage rates of 363 and 440. For the reasons which I have given earlier, I would follow Situation 1 for the periods of actual trading at the two pubs.[277]On that basis, for the two pubs together and without setting out here the detailed figures which are in the schedule (and which are enlarged upon in Mr Main’s expert reports and the appendices thereto), Mr Main calculates that the actual losses suffered by Mr Crehan were £45,487. He estimates that, if Mr Crehan had been free of tie at both pubs throughout, he would have made profits of £11,634 in the same periods from 11 July 1991 to 4 March 1993 (The Cock Inn) and 27 September 1993 (The Phoenix). So, if Mr Crehan had been free of tie he would have been better off to the extent of £57,121. I accept that figure, and it takes the calculation of the first head of loss claimed down to 4 March 1993 as respects The Cock Inn and 27 September 1993 as respects The Phoenix.[278]The second part of the first head of loss claimed by way of damages is the period from those two dates to 10 February 2003 (to which date Mr Main made his calculations and which date I would take to be equivalent to the date of judgment for the purposes of the present case). Unless I have missed something I do not think that Mr Haberman dealt with this later period at all – understandably so given the basis of Inntrepreneur’s case, which was that any damages must be measured only to the date or dates of actual loss, being the dates of actual surrenders by Mr Crehan of his two agreements for leases. Similarly, I do not think that any submissions were made to me that Mr Main’s estimates of the profits which would have been made if Mr Crehan, being free of tie, had survived and carried on trading from 1993 to 2003 were wrong. The submission was that the estimates were irrelevant. I imagine that the thinking of Inntrepreneur’s legal team was that, if that submission was not accepted and if Mr Crehan was successful on all other aspects of the case (which, of course, he has not been), they would not choose in this particular case to controvert Mr Main’s calculation of loss of profits for the period from 1993 to 2003, but that would not prevent them from controverting comparable calculations of losses put forward hereafter in any of the other cases which are awaiting the outcome of this case.[279]However, for the reasons appearing in paragraphs 267 and 268 above, I do not think that Mr Main’s estimates of the profits which would have been earned from 1993 to 2003 were irrelevant. Mr Main has again put forward two sets of figures, which he again refers to as Situation 1 and Situation 2. Situation 1 assumes the same barrelages of 330 (The Cock Inn) and 400 (The Phoenix) continuing throughout the ten years; Situation 2 assumes barrelages 10% greater (thus 363 barrels for The Cock Inn and 440 barrels for The Phoenix) continuing for the same ten years. The assumptions are obviously arbitrary, and it would never have worked out exactly like that. But Mr Main had to make arbitrary assumptions, and as he said in his evidence and as I accept, he has always been cautious and prudent. Once it is decided that Mr Crehan is in principle entitled to damages for the period to 2003 I do not think that either of Mr Main’s alternative assumptions (Situation 1 or Situation 2) can be regarded as generous to him. For myself, on this final stage in the estimation of lost profits, I would accept Mr Main’s Situation 2. The recession was over in the course of 1993; Mr Crehan would have completed works of improvement which he wanted to do to both pubs in order to attract more trade; he would be established and known to users of pubs in Staines. In the circumstances it seems reasonable to me that, over the ten years from 1993 to 2003, he would have succeeded, at least on average, in getting the turnovers of his two pubs to increase by 10% above the turnover which he might have been expected to secure as a new free of tie tenant back in 1991. I would add that in Mr Main’s original report the assumed increase of 10% in turnover was associated with an assumption that Mr Crehan was an above average tenant rather than an average tenant. However, I believe on the basis of Mr Main’s oral evidence that he proceeded primarily on the footing that Mr Crehan was an average tenant, and that the increase of 10% in barrelage could be assumed to flow from other factors such as those which I mentioned earlier in this paragraph (end of the recession, completion of improvements to the pubs, Mr Crehan’s becoming better known to customers).[280]One assumption which I ought to mention concerns rents. Guided by advice from Mr Day, the valuation expert for Mr Crehan, Mr Main considered that the rents for the pubs would not be increased on the first five-yearly review in 1996 (reflecting the fact that the initial rent was already at the level for free of tie pubs), but would be increased on the second review in 2001.[281]Mr Main’s figure for loss of profits at the two pubs from 1993 to 2003 is £1,045,944. I have no specific basis to depart from that figure, but I would nevertheless depart from it in one respect. I would deduct a percentage for contingencies. I accept that Mr Main has conscientiously taken account of developments between 1993 and 2003 in so far as he knows of them and judges that they could have impacted on the businesses of The Cock Inn and The Phoenix. For example, he has noted that part way through the period a new and large Wetherspoons pub opened quite close to The Cock Inn and The Phoenix (about the same distance away as The Angel), and he has considered what impact that might have had: by itself it might have had a downward effect on trade at The Cock Inn and The Phoenix. To the opposite effect he has observed that in 1997 a new shopping centre was opened near to The Cock Inn and The Phoenix: passing trade from that development could be expected to have had an upward effect on turnover. However, ten years of trading is a long time, and there must be a real possibility that, if Mr Crehan had remained in the pubs for that period, something unforeseen could have gone wrong. I realise that a contingency provision is normally made in a forecast for the future, and that I am now looking back over ten years which have already elapsed. I nevertheless believe that it is appropriate to scale down Mr Main’s figure by 15% for unidentified contingencies. Therefore I would quantify the loss of profits from the two pubs from 1993 to 2003 at 85% of Mr Main’s £1,045,944, giving a figure of £889,052.[282]To that amount there falls to be added the amount for loss of profits in the periods of actual trading of the two pubs from 1991 to 1993. That figure is, for reasons which I explained above, £57,121, so it appears that the loss of profit element in Mr Crehan’s damages claim would be £946,173, which I would probably round up to £950,000. That may strike a reader as a lot, but it has to be remembered that Mr and Mrs Crehan have had no earned income for 12 years: for the first two years because Mr Crehan made losses, and for the last ten years because he has been unable, despite trying, to find employment in the only business he knows, that of being a publican.[283]There are two further matters to which I must refer before I proceed to the second head of the damages claim. The first is this. Counsel for Inntrepreneur say that Mr Crehan must give credit against the damages for any benefits which he received. In principle I agree, but I do not think that there are any such quantifiable benefits to be found. Two are suggested. One is the benefit of the lower rents which in general a tied tenant has to pay. This may be a benefit in most cases, but in my opinion it cannot be regarded as one in Mr Crehan’s case. I do not see how the argument can survive the rental valuations of both experts, which show that the rents which Mr Crehan was liable to pay were already at the level appropriate for a free of tie lease.[284]The other benefit for which it is argued that credit should be given against any damages payable is said to be that a tied tenant like Mr Crehan received what an economist would describe as a ‘risk transfer benefit’. The theory is that the combination of fixed and variable costs of a tied tenant as compared to the different combination of fixed and variable costs of a free of tie tenant left the tied tenant less exposed to profit volatility. There is a section in one of the NERA reports which seeks to put a quantifiable value on this alleged benefit. I may be wrong about it, but I find the whole exercise unreal and unconvincing. The NERA report, if I have understood it correctly, appears to have calculated that the tied Inntrepreneur tenants were always better off than untied Inntrepreneur tenants. I can only say that that conclusion would be treated with derision by the other Inntrepreneur tenants who gave evidence before me. It is also totally against what appeared to be the universally accepted view that it was a great advantage to any tenant to go free from tie, even with an increase in rent, as many did on 31 October 1992 and as several other Inntrepreneur tenants did on 28 March 1998. If the valuable risk transfer benefits existed, one would have expected the tenants who were released from tie on those dates to have been begging Inntrepreneur not to release them after all. I never heard of any tenant who did anything of the sort.[285]In my opinion there are no benefits for which Mr Crehan, if he succeeded in other respects, ought to give credit against any damages payable to him by Inntrepreneur for loss of profits.[286]The second matter to which I must refer before I move on is whether tax considerations might have any impact on any damages payable to Mr Crehan or another comparable Inntrepreneur tenant for loss of profits. This issue was not considered in the arguments at all, but it appears to me that it should at least be mentioned in this judgment. The principle in the celebrated case of British Transport Commission v Gourley [1956] AC 185, is that, if damages are payable for loss of income and the damages are themselves taxable, the damages are paid in the full amount, but if the damages are not taxable whereas the income would have been, the damages are reduced. If Mr Crehan had made the profits which Mr Main estimates he would have made they would certainly have been taxable. It is not clear to me that, if Mr Crehan received damages to compensate him for not making those profits, the damages would be taxable (though I draw attention to section 103 of the Income and Corporation Taxes Act 1988). If they would not be, it seems that they ought to be reduced on the basis of the Gourley case. This point is academic unless my decision adverse to Mr Crehan on Delimitis condition 1 is reversed. I draw attention to it nevertheless. If I was deciding in favour of Mr Crehan on liability (which I am not) I would be enquiring in this judgment whether counsel wished to make submissions about it.[287]I move on to the second head of loss claimed. Mr Crehan claims damages equal to the value of the leases which he says he would own if he had been free of tie throughout. Further, this is a claim for damages equal, not to the values of the leases when he surrendered them in 1993, but to the values which they would have had at judgment in 2003. For the reasons appearing in paragraphs 267 and 268 above I agree that the damages should be computed on that footing: damages based on 1993 values would not now represent adequate compensation for the assets which Mr Crehan has lost (the leases). On this issue there is a situation similar to that which applies to Mr Crehan’s loss of profits claim for the period from to 2003. On Mr Crehan’s behalf Mr Day has given evidence of what in his opinion the 2003 values of the leases would have been. No evidence on the same issue has been tendered on behalf of Inntrepreneur. Inntrepreneur’s case is that the damages should be measured at the date of Mr Crehan’s losses, which occurred in March 1993 when he surrendered the agreement for lease of The Cock Inn and in September 1993 when he surrendered the agreement for lease of The Phoenix. On that basis the values which the leases would have had in 2003 are irrelevant, and Inntrepreneur has chosen to adduce no evidence on those values in case they are relevant after all. This would not, I think, prevent Inntrepreneur from adducing evidence on the equivalent issue in subsequent cases brought by other Inntrepreneur lessees who have been waiting for the outcome of Mr Crehan’s case.[288]Mr Day’s valuations are dependent in several respects on Mr Main’s expert report on levels of profits achievable at the two pubs, since capital values of pubs are largely determined by reference to the profit potential of the properties, not (as is common for many other kinds of commercial properties) by reference to the square footage involved. If it was not for one thing, I would be guided by Mr Day on the 2003 values of the pubs, particularly so given that, in a joint statement of Mr Day and Mr Butters, Mr Butters (Inntrepreneur’s valuation expert) has said that he is unable to comment on Mr Day’s capital valuation of the leases beyond 1993. The one thing is that, in paragraph 281 above, I have said that I would reduce Mr Main’s estimate of the profits which the pubs would have made in the 1993 to 2003 period by an arbitrary 15% for contingencies. It is possible that this could have an impact on Mr Day’s 2003 valuations. In the circumstances, if I was actually awarding damages to Mr Crehan (which I am not), I would accept the principles which underlie Mr Day’s valuations, but I would ask the parties to consider whether his actual figures require adjustment by reason of my 15% reduction to Mr Main’s estimates of profits.[289]I do, however, record for completeness that in Mr Day’s expert’s report his 2003 valuation for the lease of The Cock Inn is £145,000. For The Phoenix his valuation is £161,500. He says that for the two valued together there would be an additional £55,000 for ‘marriage value’. The total of all three figures is £361,500. The detailed figure might change for the reason which I have explained in the previous paragraph, but I would agree in principle that the marriage value addition should be made. I add two points. One is by way of explanation of the marriage value. The main point on this is that the amounts of discount per barrel which a free of tie purchaser of beer can obtain from breweries increase progressively with the volumes of purchases which he makes. A publican who buys 600 barrels in a year can secure significantly higher discounts per barrel than can a publican who purchases 300 barrels in a year. There would therefore be enhanced value to a publican in having the combined barrelage of The Cock Inn and The Phoenix at his disposal for the purpose of negotiating discounts from breweries. The property market recognises this, and therefore the combined value of two untied pubs (freehold or leasehold) is greater than the sum of the two values of each of them separately. The second point which I add is that, if I was deciding the whole case in favour of Mr Crehan and actually awarding him damages representing the 2003 values of the pubs, I would again enquire whether any thought has been given to tax (which in this respect would be capital gains tax) and to whether it might lead to any adjustment to the level of damages.[290]There is one minor point to add before I move on. Counsel for Inntrepreneur have submitted that, if I was to award damages for the value of the pub leases which Mr Crehan says that he lost because of Inntrepreneur’s infringement of article 81, he should give credit against the damages for the amount which Inntrepreneur credited to him when he left The Cock Inn for the glassware, tables and chairs, etc. (These were the items for which Mr Crehan paid the ‘ingoings’ when he assumed occupation of the pub. I do not know whether they are still referred to as such, or rather as ‘outgoings’, when a tenant leaves a pub.) I may be missing something here, but I do not understand the argument. When Mr Crehan left The Cock Inn he owned the glassware, furniture, etc, which he left in the pub, and it was appropriate for him to be credited with the value of them. I imagine that Inntrepreneur applied the value so credited in reduction of rent arrears which Mr Crehan owed. He would only have to give credit for that value against damages in his present claim if the damages would otherwise include the same value again. But I cannot see how they would do that. The loss of profits element in the damages would not include an amount reflecting the value of glassware, etc, in the pub when Mr Crehan’ surrendered the agreement for lease, and as I understand it the element of damages for the capital value of the lost leases would not include that amount either. I can see no reason why Mr Crehan should have to give credit for this item as counsel for Inntrepreneur have argued that he should.[291]Inntrepreneur makes a similar submission in relation to The Phoenix, but there is a difference in that case, because, as part of Mr Crehan’s unfortunate financing transaction in 1993, he had sold all the glassware, furnishings and other items at The Phoenix to Bampton Finance and leased them back.So he did not own them when he left The Phoenix, and I assume that he was not credited with the value of them by Inntrepreneur when he left that pub. In the circumstances I can see no reason why any damages under the present claim should be reduced by credit given by Mr Crehan for the value of the glassware, etc, at The Phoenix. Were Mr Crehan and Mr Carroll in partnership?[292]The relevance of this issue is that Mr Crehan is the sole claimant. If he and Mr Carroll were in partnership half the losses for which Mr Crehan is claiming damages would not be his losses but Mr Carroll’s losses, and on the face of it Mr Crehan’s damages would be reduced by 50%. I have explained the factual background to this issue in paragraphs 68 and 69 above. The argument that Mr Carroll was a partner of Mr Crehan rests largely on documents. First there are the two agreements for leases (one for each pub), in each of which ‘the lessee’ is stated to be Mr Carroll and Mr Crehan together. Second there are several documents prepared by Mr Neal, the accountant, which he drew up on the assumption – a natural one for him to make – that Mr Crehan and Mr Carroll were partners. It is also the case that Mr Carroll undoubtedly put a lot of money into the pubs, and it would not be unusual for the funder of a business to be a part-owner of it.[293]However, there is no partnership agreement or anything of that nature. Further, there are no specific inferences which can be drawn from the conduct of the parties. I do not think that Mr Carroll ever signed any documents with third parties which purported to bind Mr Crehan as well as himself. More significantly, perhaps, there never were any profits. If there had been it would have been relevant to see what happened to them. If they had been in some way divided between Mr Crehan and Mr Carroll that would be an indication that there was a partnership; if they had all gone to Mr Crehan that would be an indication to the opposite effect.[294]So the documents tend to suggest the existence of a partnership. The events which happened are relatively neutral, although the impression which users of the pubs had was that the pubs were Mr Crehan’s pubs. Certainly none of the customers of the pubs who gave evidence said anything to suggest that they thought that Mr Carroll was a part owner of the business. However, several of the customers may have thought that Mr and Mrs Crehan were together the owners of the business, so the impression which they had does not help much. That leaves the oral evidence of Mr and Mrs Crehan and Mr Carroll. They all said that Mr Crehan was the sole owner of the business, and that there was no partnership. They said that Mr Carroll’s name appeared on the agreements for lease as a ‘gesture’, and that there was no intention to show that he and Mr Crehan were in partnership with each other. In Mr Carroll’s witness statement he says that in 1994 he had told Mr Crehan that, even though his name appeared on the agreements, he did not want to be involved in any claim against Inntrepreneur; if Mr Crehan recovered any money which Mr Carroll had put into the pubs he could keep it. There is a deed of assignment of 25 July 2002, presumably executed on the advice of Charles Russell. It recites that Mr Carroll may own rights in and causes of action under the agreements for lease. It provides that Mr Carroll assigns to Mr Crehan ‘his entire rights under the agreements’. Mr Carroll says in his witness statement that this formalised what he and Mr Crehan had agreed in 1994.[295]So what am I to make of all this? It is certainly untidy, and it leads me to doubt whether the Crehans and Mr Carroll ever properly understood the basis on which the agreements with Inntrepreneur were being concluded and on which Mr Carroll was putting quite a lot of money into the business. But then, why should they have been expected to have a clearly understood basis between them? Life would be easier for lawyers and accountants if members of a family who set up a business always documented the precise basis for it clearly at the outset. But many families do not in practice operate that way, and usually it does not matter. I do not think that it is suggested to me on behalf of Inntrepreneur that, when Mr and Mrs Crehan and Mr Carroll tell me that, whatever the documents might suggest, in their minds Mr Crehan was the sole owner of the business and Mr Carroll was not a partner, they are dissembling or giving untrue evidence. In any case all three of them seemed to me to be clearly honest and straightforward witnesses. When they tell me that, as far as they were concerned, Mr Crehan was the sole owner of the business, that is what they sincerely believe. I am not prepared to override the honest evidence of all three of them, and to find that Mr Carroll was a partner nevertheless, so that Mr Crehan had only a 50% interest in the business, and has only a 50% interest in this claim.[296]Accordingly, if I was awarding any damages for the losses suffered in this case I would not reduce them by half on the ground that Mr Crehan, the sole claimant, had only a 50% interest in the business and therefore has suffered only 50% of the losses. Conclusion[297]So at last I have reached the end of this very long judgment. I will not attempt to summarise here the many points with which I have attempted to deal. On most of the issues which have been debated I agree with the case advanced on behalf of Mr Crehan. However, for him to succeed it is critical that the Inntrepreneur beer ties were in breach of article 81 of the EC Treaty. For that to be the case both of the Delimitis conditions needed to be satisfied. For the reasons which I have given, which have nothing to do with Mr Crehan’s personal activities as the tenant and occupier of The Cock Inn and The Phoenix, I conclude that Delimitis condition 1 was certainly not satisfied, and that condition 2 may not have been satisfied either. In those circumstances and for that reason I must dismiss Mr Crehan’s damages claim.

Cited in 3 later judgments