P & S Amusements Ltd v Valley House Leisure Ltd & Anor [2006] EWHC 1510 (Ch)

[2006] EWHC 1510 (Ch)Case No HC04C03315
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 26 June 2006
Before
THE CHANCELLOR OF THE HIGH COURT
Between
P & S Amusements LimitedClaimantValley House Leisure LimitedDefendantsPeter Alfred Valentine
Mr Nigel Gerald (instructed by Turner Parkinson) for ClaimantMr Stephen Cogley (instructed by Shammah Nicholls) for DefendantsHearing Hearing dates: 13 th and 14 th June 2006
Judgment

The Chancellor :

[1]In 1991 the late Peter Stefani and members of his family owned 169 Promenade, Blackpool. They wished to convert it into a bar and nightclub (“the Club”). They made arrangements with the Scottish and Newcastle Group whereby the latter would lend £185,000 to pay the cost of the conversion on terms that the beer requirements of the bar and nightclub were bought from them. The arrangements were implemented by(a) a headlease of the Club granted by the Stefani family to the claimant P&S Amusements Ltd (“the Landlord”), a company which they controlled(b) an underlease of the Club granted by P&S Amusements Ltd to Findextra Ltd (“the Underlease”) and(c) a loan agreement regulating the repayment of a secured loan of £185,000. By assignments made on 27th January 1992 and 8th May 1998 the benefit of the underlease was vested in the first defendant, Valley House Leisure Ltd (“the Tenant”), the second defendant, Mr Valentine is a guarantor of the tenant’s covenants in the underlease.[2]By the Underlease, made on 24th July 1991, the Landlord demised the Club for a term of 20 years less 10 days from 19th July 1991 in consideration of a premium of £60,000 and an annual rent of £65,000 subject to an upward only triennial rent review. Clause 5(6) entitles the tenant to renew the Underlease for a further term of 10 years on the terms and conditions therein specified. The ‘beer tie’ for which Scottish & Newcastle stipulated as a term of the loan of £185,000 is contained in clause 2(11)(C) which itself contains nine sub-clauses. In future I shall refer to the sub-clause number only. Sub-clauses (7),(8) and (9) contain definitions of respectively “designated beers”, “Beer of a different type” and “nominated suppliers”. The latter is defined as:
“such undertakings entrusted by the Landlord with the Distribution of Beers and Liquors as the Landlord may nominate from time to time.”
[3]Sub-clause (1), so far as material, provides:
“The Tenant agrees: (a) to purchase only from the Landlord or its Nominated Suppliers all the Tenant’s requirements for the designated Beers for sale on the Demised Premises (b) Not to sell or make available for purchase or bring onto the Demised Premises for the purpose of resale any Beer other than the designated Beers unless.....”
[4]By Sub-clause (2) the Landlord agrees to the best of its ability to supply or procure its nominated supplier to supply the tenant with all the tenant’s requirements for the designated beers. If for any reason it is unable to do so then the tenant is released from its exclusive purchasing obligations to such an extent as may be appropriate. By sub-clause (3) the tenant agrees to pay trading accounts and statements from the Landlord or its nominated suppliers within 14 days of the same being rendered “all goods to be charged at the prices on the Landlord’s or its nominated suppliers current standard trade price list for the region in which the Demised Premises are situate.”[5]The Landlord was not a brewer or wholesaler of beer, nor indeed was it the owner or lessee of any other licensed premises in Blackpool or elsewhere. Accordingly the requirements of the Club were procured from a supplier nominated by the Landlord. From 1991 to October 2002 the nominated supplier was one or more companies in the Scottish & Newcastle Group including Matthew Brown and John Smith. In accordance with the provision I have quoted in paragraph 4 above (“the Tailpiece”) the Tenant was charged the full trade list price but under a separate agreement with the nominated supplier the Landlord was paid a discount on the beer bought by the Tenant. The Tenant did not know that the Landlord was being paid a discount in respect of the Tenant’s purchases until mid-2001. That fact was revealed in discussions between the Tenant and Mr Stefani about the price to be charged to the Tenant (£250,000) for buying out the beer tie. The following year the Tenant took the matter up with the nominated supplier in consequence of which the nominated supplier agreed to pay the discounts to the Tenant instead of the Landlord. The decision to that effect was communicated to the Landlord by letter from John Smith’s dated 1st August 2002. Thereafter the Tenant bought its beer requirements from a company in the Scottish and Newcastle Group and received the discounts formerly paid to the Landlord.[6]The Landlord was dissatisfied at being cut out in that manner. On 22nd October 2002 it arranged with Carlsberg-Tetley for payment of a discount on the purchases of beer by the Tenant in consideration for nominating Carlsberg-Tetley as the supplier for the purposes of the Underlease. On 8th November 2002 solicitors for the Landlord wrote to those for the Tenant nominating Carlsberg-Tetley in accordance with sub-clause (9) of the Underlease. The Tenant took no notice; it continued to obtain its beer requirements and associated discounts from a company in the Scottish and Newcastle Group.[7]These proceedings were instituted by the Landlord on 19th March 2004. It seeks an injunction to compel performance of the beer tie as set out in the Underlease by restraining the Tenant from buying any of its requirements for designated beer from any person other than the nominated supplier for the time being. In addition it claims damages for breach of covenant against both defendants. In their original defence the Defendants relied on a number of grounds not material to the matters with which I am concerned. By paragraph 32A, inserted by an amended defence served on 7th October 2004, they contend that the beer tie was prohibited and therefore invalidated by ss. 2 and 18 Competition Act 1998 which enact in the national context the provisions of Articles 81 and 82 of the EC Treaty.[8]In the light of criticisms of that pleading made in argument before me counsel for the defendants indicated that he would apply for permission to re- re- reamend the defence. As so amended it would be in the following form (the further intended amendments being shown in bold):
“32AThe Exclusive Purchasing Obligations taken in conjunction with the arrangements and practises between the Claimant and the Nominated Suppliers, as contended for by the Claimant, and as founding its Claims herein are prohibited under Chapter I section 2(1) of the Competition Act 1998 (“the Act”) and further reliance on the same is prohibited or illegal/invalid as conduct constituting Abuse of a Dominant Position within Chapter II section 18 (1) of the Act. Accordingly the Claimant cannot rely on the same. PARTICULARS (i) the Suppliers and the Claimant are undertakings within the Act, and the arrangements, agreements or practises contended for by the Claimant fall within section 2 (1) and also constitute “conduct” within section 18(1). In particular both John Smiths and Carlsberg Tetley are dominant in the market for the Designated Beers in the geographical area of Blackpool - with Carlsberg Tetley holding approximately 50% of the Market. The percentage occupied held by John Smiths will be voluntarily particularised prior to the exchange of Witness Statements; (ii) the said conduct and arrangements agreements and practises has as its object or effect directly, alternatively indirectly, the prevention restriction and distortion of competition both within the UK and the immediate market, namely the geographical area of Blackpool; (iii) in particular the requirement that the First Defendant purchases Beers as contended for by the Claimant imposes unfair purchase prices on the First Defendant (because unlike all of its competitors it is precluded from obtaining any discount from suppliers thereby preventing it from competitively pricing the Designated Beers for resale to it’s customers. The prices it will have to charge are/will be in the region of 38 % higher than its competitors), subjects it to the application of dissimilar conditions to equivalent transactions entered into by other suppliers and publicans inhabiting the same position as the First Defendant in the distribution chain (none of whom have similar restrictions, all of whom obtain at least some discount - even if tied) and indirectly fixes the prices at which the First Defendant can re sell (by dictating the margin at which the First Defendant can make a profit/break even significantly above that of any of its competitors). For the avoidance of doubt the effect of the First Defendant being compelled to purchase at a price significantly higher than all of its competitors severely disadvantages it in the market and allows the Nominated Supplier to act free from normal market restraints by charging a price which it would not be able to charge without the Beer tie in this case. Further, non exhaustive, details are set out in the Second Witness Statement of Trevor Robbins dated 12th June 2006.”
Chapter II section 18 (1) of the Act. Accordingly the Claimant cannot rely

PARTICULARS

[9]These contentions were dealt with by the Landlord in paragraph 15 of its reply. In relation to the Defendants’ contentions regarding s.2 it relied on the terms of the block exemptions contained in The Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2000 (SI 2000/310) and The Competition Act 1998 (Land and Vertical Agreements Exclusion) Order 2004. In addition it denied that the beer tie contained in the Underlease either affected trade in the United Kingdom or any part of it or prevented, restricted or distorted competition. With respect to that part of the defence it specifically put the defendants to proof of the relevant primary facts, such as the relevant product market, its geographical area and the alleged influence over it enjoyed by the Landlord. In the case of the alleged defence under s.18 the Landlord denied any dominance in the relevant market or abuse of it and put the defendants to proof of the relevant primary facts.[10]By his order made on 31st March 2005 Master Bowles directed a split trial “of all issues of liability excluding all competition law and quantum”. That trial took place before Park J between 28th November and 2nd December 2005. Park J gave judgment on 2nd February 2006. In summary he concluded that, competition law apart,(1) the Tenant was bound by the beer tie and in breach of covenant by not buying its beer requirements from Carlsberg-Tetley since November 2002,(2) the Landlord was entitled to an enquiry as to damages for the period after its nomination of Carlsberg-Tetley,(3) certain additional breaches alleged with regard to purchases of Budweiser beer were not made out and(4) the Landlord was not accountable to the Tenant for the discounts paid to the Landlord by Scottish & Newcastle.[11]On 21st February 2006 the solicitors for the defendants wrote to those for the Landlord informing them that the Tenant had acceded to the Landlord’s request to change the nominated supplier to Carlsberg-Tetley. The letter continued:
“Our Clients have been granted new terms of trade by Carlsberg Tetley direct as your client’s nominated supplier. We understand from our clients that Carlsberg Tetley have confirmed that the terms agreed with our client are acceptable to them and, that there will be no other concessions/discounts available to any other party. Of course, it stands to reason that the same position would have been adopted had they decided to go with Carlsberg Tetley earlier or indeed in October 2002 when you first intimated that your client wished to change the nominated supplier. Therefore, under this head, even if the nominated supplier clause is upheld at the competition trial, your clients will have suffered no damage.”
They asked the solicitors for the Landlord to agree that no enquiry as to damages, as envisaged by Park J, should take place.[12]It was in these circumstances that the application now before me was issued by the Landlord on 7th April 2006. It falls into three parts. First the Landlord seeks orders under CPR Rules 3.4(2)/28.2 striking out or summarily dismissing the defences under ss.2 and 18 Competition Act 1998 pleaded in paragraph 32A of the re- re-amended defence. Second, the Landlord applies for permission to re-re- amend paragraphs 4A, 9(d) and 12 and the consequential relief. It seeks to allege an implied term in the beer tie to the effect that the tenant should not seek to negotiate with the nominated supplier supply terms such that it would be charged less than the prices shown in the current standard trade price list for the region or otherwise so as to prejudice the interest of the Landlord in relation to the nominated supplier. It would allege that the agreement between the Tenant and Carlsberg-Tetley to which the letter from the Tenant’s solicitors dated 21st February 2006 referred was a breach of such an implied term thereby preserving its right to damages. Third, the Landlord seeks at this stage and without more a declaration that such a term is to be implied into the underlease.[13]Thus the issues for my determination are whether:(a) the Tenant has reasonable grounds for/a real prospect of success in the alleged defence under (i) s.2 Competition Act 1998, or (ii) s.18 Competition Act 1998;(b) the Landlord should be granted permission to re- re- amend its particulars of claim so as to allege the existence and breach of the implied term;(c) the Landlord should be granted a declaration as to the existence and breach of such an implied term at this stage. I will deal with those issues in that order. But first it is necessary to deal with the tests to be applied in the resolution of the first of those issues.

Strike out/Summary Dismissal

[14]CPR Rule 3.4(2) entitles the court to strike out part of a defence if the statement of case discloses no reasonable ground for defending the claim. CPR Rule 24.2(a)(ii) permits the court to give summary judgment against a defendant on a particular issue if it considers that the defendant has no real prospect of successfully defending the claim or issue. As the latter provision is the wider of the two, in practice, it is only necessary to consider whether the Tenant has a real prospect of succeeding on either limb of the first issue. In that respect it is well established that a “real prospect” is to be contrasted with the “fanciful”. Similarly the court must heed the warning, when exercising these jurisdictions, against conducting a mini-trial, see Swain v Hillman [2001] 1 AER 91 and Three Rivers Council v Bank of England [2003] 2 AC 1, 260 paras 94 and 95.[15]Both limbs of the first issue depend on the proper construction and application of provisions of the Competition Act 1998 which reproduce in the national context the provisions of Articles 81 and 82 EC Treaty. The general requirement for the party to plead the facts on which he relies applies to claims or defences under those sections as to any others. Thus, as with claims or defences under Articles 81 or 82 EC Treaty, so with claims or defences under ss. 2 or 18 of the Competition Act 1998 the party relying on the same must plead the primary facts on which he relies for the relevant conclusion, see per Neuberger J in Esso Petroleum v Gardner (8th July 1998 unreported) approved by the Court of Appeal in Parks v Esso Petroleum Co Ltd [1999] EWCA Civ 1942. For example it is insufficient merely to aver that a given concerted practice has as its effect the distortion of competition within the United Kingdom. This is a mere recitation of the statutory condition or conclusion imposed or required by s.2(1)(b) without alleging any primary facts from which it might be inferred or found. In any event such claims or defences require careful scrutiny so as to prevent cases lacking in sufficient merit going to long and expensive trials, see Intel Corporation v Via Technologies [2002] AER(D) 346 para 32 and Adidas v The Lawn Tennis Association [2006] EWHC 1318 (Ch) para 24.

S.2 Competition Act 1998

[16]So far as material to this case s.2 provides as follows:[2]-(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which- (a) may affect trade within the United Kingdom, and (b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom, are prohibited unless they are exempt in accordance with the provisions of this Part.(2) Subsection (1) applies, in particular, to agreements, decisions or practices which- (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.(3) Subsection (1) applies only if the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom.(4) Any agreement or decision which is prohibited by subsection (1) is void. [(5) (6)] (7) In this section "the United Kingdom" means, in relation to an agreement which operates or is intended to operate only in a part of the United Kingdom, that part.”[17]I have quoted the relevant parts of the proposed re- re- reamended defence in paragraph 8 above. They do not distinguish between allegations relevant to the defence under s.2 and under s.18. So far as reliance on s.2 is concerned the relevant allegations appear to be:(a) s.2 is to be considered in relation to the beer tie taken in conjunction with the arrangements and practices between the Landlord and its nominated supplier as contended for by the Landlord, preamble and particulars (i);(b) such arrangements and practices have as their object or effect, directly or indirectly, the prevention, restriction and distortion of competition both within the United Kingdom and the immediate market, namely the geographical area of Blackpool, particulars (ii);(c) the beer tie imposes unfair purchase prices on the Tenant because unlike its competitors it is precluded from obtaining any discount from suppliers thereby preventing it from competitively pricing its beers to its customers, particulars (iii);(d) the beer tie subjects the Tenant to conditions dissimilar to those prevailing between other suppliers and retailers at the same point in the distribution chain for equivalent transactions, particulars (iii).[18]Counsel for the Landlord submits that such a pleading is inadequate as a pleading. He goes on to contend that the underlying facts, as to which there is no dispute show that there are no primary facts on which a proper defence under s.2 could be pleaded. Specifically:(1) He points out that there is no allegation that the agreement or practices relied on have any effect on trade within the United Kingdom as required by s.2(1)(a), let alone any facts from which any such effect might be inferred or found.(2) He recognises that the particulars contained in sub-paragraph (ii) aver a conclusion in the terms of s.2(1)(b) but complains that there are no primary facts alleged from which any such conclusion could be drawn.(3) He points out that the classic case on beer ties, De Limitis v Henniger Brau AG [1991] I-ECR 935, requires the complainant to establish two cumulative conditions, namely (a) in the economic and legal context in which they were made or carried out the agreement or practice of which complaint is made, together with other similar agreements or practices, makes it difficult for competitors to enter the relevant market or increase their share of it and (b) the agreement of which complaint is made makes a significant contribution to such ‘sealing off’ effect of all the agreements or practices. Counsel points out that the Tenant makes no such allegations. Nor is there any likelihood that it could. The Landlord is not a brewer and does not own other licensed premises in Blackpool. Moreover the evidence on which the Tenant relies, particularly the witness statement of Mr Robbins referred to in particulars (iii), demonstrates that competition in the licensed trade in Blackpool is thriving.(4) Counsel for the Landlord also accepts that paragraph (iii) of the particulars recites the terms of s.2.2(d) but, he complains, contains no allegation of fact to support the conclusion.[19]Counsel for the Tenant stresses that the Landlord is not, at this stage, relying on the terms of the block exemption referred to in the reply. He acknowledges that his original pleading was defective and puts forward the re- re- reamended version I have quoted in paragraph 8 above. He explained that his case is not based on foreclosure of the market, as in De Limitis, but on pricing beer sales to the Tenant, by means of the Tailpiece (see paragraphs 4 and 5 above), so as directly to fix the Tenant’s purchase price and indirectly fix his selling prices at levels which prevent him competing in the market for the retail sale of beer in Blackpool. He relies on s.2(2)(a). In addition, he submits that the evidence shows that no other licensee has to carry on business on such terms so that s.2(2)(d) is satisfied also. He accepts that there is no allegation that the condition prescribed by s.2(1)(a) is satisfied. He contends, relying on the decision of the Competition Appeal Tribunal in Aberdeen Journals Ltd v OFT [2003] CAT 11 paras 453-463, that the effect on trade there referred to does not have to be appreciable or significant. Consequently, so he suggests, the omission should not preclude a further, formal, amendment so as to fill the gap.[20]In my judgment the case for the Tenant based on s.2 is fundamentally misconceived and should be summarily dismissed. The section is, as I have observed before, an application within the United Kingdom of the principles enshrined in Article 81 of the EC Treaty. Sub-section (1) prescribes three conditions for its application namely(1) the existence of agreements etc which(2) may affect trade within the United Kingdom or the part of it within which the agreements etc are intended to operate and(3) have as their object or effect the prevention, restriction or distortion of competition. The agreements etc relied on are the beer tie contained in clause 2(11)(C) of the Underlease, in particular the Tailpiece, and the agreements between the Landlord and its nominated supplier. The consequences to which they give rise are said to come within s.2(2)(a) and (d) because the Tailpiece fixed the prices to the Tenant and the benefit of the discounts went to the Landlord and not the Tenant. This no doubt is true but it does not follow that a state of fact which comes within one or other of the sub-paragraphs of s.2(2) is prohibited by the section. The state of fact must also satisfy the requirements of s.2(1), specifically sub-paragraphs (a) and (b).[21]In Aberdeen Journals Ltd v OFT [2003] CAT 11 paras 453-463 the Competition Appeal Tribunal dealt with a complaint under s.18 which also requires an “effect [on] trade within the United Kingdom”. They concluded (paragraph 459) that “More generally, we are not satisfied that we should read into the statutory wording of section 18(1) of the 1998 Act a requirement that the effect on trade should be appreciable. It is true that, ever since the decision of the Court of Justice in Case 5/69 Volk v Vervaecke [1969] ECR 295, it has been the rule that the prohibition of Article 81 of the EC Treaty applies only if there is an “appreciable” effect on competition and trade between Member States: see also Case 22/71 Béguelin v Commission [1971] ECR 949. The requirement that there should be an “appreciable” effect on inter-state trade is, however, largely understood as a jurisdictional requirement which demarcates the boundary line between the application of Community competition law and national competition law: see e.g. Cases C-215/96 and C-216/96 Bagnasco v Banco Popolare di Novara [1999] ECR I-135, a case under Article s 81 and 82, and Case 22/78 Hugin v Commission [1979] ECR 1869, a case under Article 82.” Notwithstanding that conclusion the Tribunal was at pains to emphasise a significant effect on competitors, see paragraphs 457 and 458.[22]Counsel for the Tenant seeks to transpose that conclusion to the same phrase when used in the different context of s.2(1). I have considerable misgivings about the validity of the Tribunal’s conclusion in the context of s.18 (Article 82) and would need much persuasion that it should be transposed into the different context of s.2 (Article 81). What is the purpose of imposing such a requirement to the application of the section at all if it does not have to be satisfied to an extent greater than the minimal? It is not permissible to deny substantive effect to an express statutory provision such as s.2(1)(a). Moreover the conclusion if applied to Article 81 and s.2 would seem to be contrary to decisions of the European Court of Justice of some standing, see for example Volk v Vervaecke [1969] ECR 295. Nevertheless I am considering whether the s.2 defence has any real prospect of success. Given the existence of the decision of the Competition Appeal Tribunal and the references to it without critical comment in both Chitty on Contracts 29th Ed. Vol 2 Para 42-087 and Whish on Competition Law 5th Ed. I do not consider that I should decide this application on that ground.[23]However it is not disputed that the condition set out in s.2(1)(b) must be satisfied. It is not suggested that the restriction etc of competition was the object of the beer tie in this case. Nor is it disputed that the subsection requires that the agreements etc of which complaint is made do have as their effect the prevention, restriction or distortion of competition within the United Kingdom to an appreciable extent. As Professor Whish points out in Competition Law 5th Ed. p.108:
“..there are many judgments of the Community Courts that demonstrate that a contractual restriction does not necessarily result in a restriction of competition....the concept of a restriction of competition is an economic one, and as a general proposition economic analysis is needed to determine whether an agreement could have an anti-competitive effect.”
Thus it was not suggested in De Limitis that the beer tie of which complaint was made could by itself have the effect of restricting etc competition. It was necessary to consider the economic effect of all the relevant beer ties to ascertain whether collectively they inhibited access to the market or the increase in a competitor’s market share. If they do then it is necessary to consider if the individual beer tie makes a significant contribution to such an effect.[24]The agreement of which complaint is made in this case is the beer tie imposed by the Landlord on the Tenant as a part of the Underlease in the context of the associated agreement between the Landlord and the nominated supplier whereby the Landlord, rather than the Tenant, received the discounts and the price to the Tenant is dictated by the nominated supplier not the Landlord. No doubt such an arrangement is likely to inhibit competition from the Tenant but how can it prevent, restrict or distort competition within the United Kingdom or indeed in Blackpool?[25]The second witness statement of Mr Robbins, a director of the Tenant, deals at some length with the bar trade in Blackpool. He points out that the season lasts from Easter to October in each year. He estimates that there are some 150 licensed pubs or bars. It is his opinion that John Smith and Carlsberg-Tetley are the largest suppliers of beer to that market. He suggests that price is the most important aspect of that market. He describes (paragraph 4) how:
“Trade is attracted by advertising sometimes on boards outside as to how much particular drinks are, i.e. the sort of drinks that make up the designated beers. Customers frequently ask how much the drinks are and are not remotely loyal. Whole groups of people (particularly large groups on holiday from Scotland in the summer) will regularly leave an establishment if the price is too high and they simply go to the pub next door if that is selling the designated beers at a lower price.”
In paragraph 9 he adds:
“I do not know of any other outlet in Blackpool that does not obtain some form of discount, perhaps with the exception of brewery owned outlets, where of course the tenant would enjoy a very low rent.”
[26]In my view this evidence, adduced by the Tenant, shows clearly that the beer tie does not have any appreciable effect on the bar trade in Blackpool such as to satisfy s.2(1)(b). Whatever its effect on the Tenant price competition in the bar trade in Blackpool is obviously strong. In its reply to the defence under s.2 the Landlord required the Tenant to specify and prove a number of relevant matters. They included the nature and extent of the Landlord’s influence over the relevant market and the Tenant’s share of it. It is common ground that the Landlord does not own any other licensed premises in Blackpool. It is not suggested that the Tenant alone is an appreciable contributor to the market. I see no prospect of the Tenant establishing any facts sufficient to justify a conclusion that the condition imposed by s.2(1)(b) is satisfied. I will summarily dismiss that part of the defence as alleges a defence to the Landlord’s claim under s.2.

S.18 Competition Act 1998

[27]S.18, which corresponds to Article 82 of EC Treaty, provides, so far as material:[18]- (1)....any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom. (2) Conduct may, in particular, constitute such an abuse if it consists in-(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;(b) limiting production, markets or technical development to the prejudice of consumers;(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts. (3) In this section- "dominant position" means a dominant position within the United Kingdom; and "the United Kingdom" means the United Kingdom or any part of it.”[28]The allegations relevant to this defence made in the proposed amended paragraph 32A, quoted in paragraph 8 above, are:(a) the beer tie in the underlease taken with the agreements or arrangements between the Landlord and its nominated suppliers constitutes the relevant conduct, preamble;(b) John Smith’s and Carlsberg-Tetley are dominant in the market for designated beers in the geographical area of Blackpool, particulars (i);(c) such conduct imposes unfair purchase prices on the Tenant, particulars (iii);(d) such conduct applies conditions to the Tenant dissimilar to those imposed on others so as to put the Tenant to a competitive disadvantage, particulars (iii).[29]Counsel for the Landlord submits that the Tenant has not defined the relevant market, nor has it suggested that the Landlord is in a dominant position in that market in relation to the conduct relied on. He submits that the effect of the beer tie on the Tenant cannot constitute an abuse nor can it affect trade within the United Kingdom or any part of it.[30]These submissions are disputed by counsel for the Tenant. Once again he relies on the decision of the Competition Appeal Tribunal in Aberdeen Journals Ltd v OFT [2003] CAT 11 paras 453-463 for the proposition that it is not necessary to allege and prove that the conduct relied on has any appreciable effect on trade within the United Kingdom or any part of it. He suggests that he has sufficiently alleged and has a real prospect of proving that both John Smith’s and Carlsberg-Tetley are in a dominant position on the market in Blackpool for designated beers.[31]In my judgment the alleged defence under s.18 is also misconceived and has no real prospect of success. Accepting for the purposes of the argument that the relevant market is that for designated beer in Blackpool it is necessary to establish that those of whose conduct complaint is made are dominant on that market. A dominant position is:
“a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by allowing it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers.”
See Hoffman-La Roche v Commission [1979] ECR 461,[32]The Landlord is plainly not dominant on any market. Whilst either of the nominated suppliers may be, as is common ground, neither of them was or is bound to supply to the Tenant any beer at prices which are so excessive as to be unfair or abusive. The fact is that it is the tailpiece imposed by the Landlord which requires the Tenant to pay the nominated supplier’s list prices for the region in which Blackpool lies. There is no obligation on the nominated supplier precluding it from allowing the Tenant such discounts as it thinks fit. In fact that is what both of them did. Nor is there any suggestion that it could be in the commercial interests of any nominated supplier to drive the Tenant out of the market. Thus the Landlord did not have a dominant position to abuse and even if a nominated supplier did have a dominant position and even if the prices it charged the Tenant were higher than those available from other suppliers that is not enough to establish an abuse.[33]The instances set out in sub-paragraphs (a) to (d) of s.18 are descriptions of conduct which “may” constitute such an abuse. It does not follow that conduct answering any of those descriptions is an abuse within s.18(1) for it is necessary also to establish a relevant dominant position and an effect on trade within the United Kingdom or any part of it.[34]As in the case of s.2 I question the conclusion of the Competition Appeal Tribunal in Aberdeen Journals in paragraph 459 that it is not necessary for the effect on trade within the United Kingdom or any part of it to be appreciable. As in the case of s.2 I do not decide this application on that basis. Rather I conclude that there is no reason to think that the Tenant has a real prospect of establishing that on the facts of this case there could be any abuse of any relevant dominant position. For all these reasons I will also summarily dismiss the defence under s.18.

Permission to re-reamend the particulars of claim

[35]The Landlord’s application to re- reamend the particulars of claim must be considered in the context that having dismissed both competition law claims effect must now be given to the judgment of Park J on all the issues as to liability. Accordingly, subject to any further argument as to its form, I should grant an injunction against the Tenant to restrain it from purchasing from any person other than the supplier nominated for the time being by the Landlord for the purposes of clause 2(11)(C) pursuant to sub-paragraph (9) thereof any designated beers for sale in the Club. The Landlord is also entitled to an enquiry as to damages.[36]The amendment for which permission is now sought would insert into the particulars of claim a new paragraph 4A to plead the implied term to which I have referred in paragraph 12 above, a new paragraph 9(d) to allege the breach of such a term by negotiating and agreeing terms with Carlsberg-Tetley in December 2005 for the purchase of designated beers at prices less than those in its trade price list for the region in which Blackpool lies and thereby denying to the Landlord the discounts from the nominated supplier it would otherwise have received. The prayer would be amended to claim a consequential declaration.[37]There is no doubt that occasion for such an allegation had arisen in August 2002 when Scottish & Newcastle stopped paying discounts to the Landlord. No such allegation was made in the particulars of claim nor was an amendment to raise the point sought then or at any time before Park J gave judgment. Accordingly Park J did not decide whether the Tenant was entitled to negotiate with the nominated supplier so as to obtain for itself the discounts the Landlord had expected from the nominated supplier. Plainly the amendment was prompted by the knowledge acquired in early 2006 that the Tenant had done a deal with the new nominated supplier and by repeating the process each time the nominated supplier was changed could prevent the usual supplier’s discount ever being paid to the Landlord.[38]The application is opposed by the Tenant on two grounds, first the cause of action relied on has no real prospect of success, second the application is made too late. Counsel for the Tenant contends that the grounds for the implication, namely the obvious intention of the parties and necessity to give business efficacy to the agreement cannot be made out. He points out that the Underlease dealt with the prices with which the Tenant was to be charged in the Tailpiece. They were to be determined by the Landlord if it was the supplier or the nominated supplier if it was not by reference in each case to its current standard price list. Plainly if the Landlord wished to allow the Tenant a discount it could. Equally had it wished to do so it could have imposed terms on the nominated supplier precluding it from allowing discounts to the Tenant thereby reducing what it would otherwise pay to the Landlord. As it is, as Park J held, there is nothing to preclude a nominated supplier from charging the Tenant such price, high or low, as it chooses.[39]This is disputed by counsel for the Landlord. He accepts that there is nothing to prevent a nominated supplier giving the Tenant such discount as it thinks fit. Equally he accepts that the Tenant may accept any discount which the nominated supplier may offer. The term for which he contends would only preclude the Tenant from seeking such discounts. He submits that any such negotiation would be inconsistent with the Tailpiece and would deny to the Landlord the additional wet rent the underlease clearly contemplated.[40]The question of implication must be judged in relation to the facts known to both parties in July 1991. There is no clear evidence as to what all those facts were. It may be that the Tailpiece was included because it was part of the inappropriate precedent the parties chose to use. Equally, it may be that it was intended to provide the Landlord with the additional wet rent to which Counsel for the Landlord referred. In the latter event there is an argument that if the Tenant is to be permitted to negotiate with the nominated supplier for a discount it will undermine one of the commercial elements of the overall arrangement. For these reasons I am not prepared find that the argument the Landlord seeks to advance has no real prospect of success, but it does not follow that the Landlord should be permitted to raise the point in this action and at this stage.[41]Counsel for the Tenant submits that the application is made too late. He points out that the cause of action on the implied term arose wholly after the claim form had been issued. He relies on the fact that, notwithstanding there was occasion to raise the point before the trial before Park J concluded, the Landlord did not do so. He suggests that if the point had been raised before that trial commenced its course might well have been different.[42]There is no doubt that this application is made later than it ought to have been. Equally the cause of action arose after this action was commenced. If the grant of permission to amend would necessitate the reopening of the liability issues already decided by Park J I would refuse permission to amend and leave the Landlord to such remedy as he might obtain in a second action, notwithstanding that the point might have been raised in the first. In that event such a course would, in my judgment, best implement the overriding objective.[43]But there are outstanding issues in this action, namely those which will arise on the inquiry as to damages. In their letter of 21st February 2006, quoted in paragraph 11 above, the solicitors for the Tenant relied on the fact that the Tenant had negotiated terms with the nominated supplier which excluded the Landlord from any discount as excluding any liability for damages for breach of the beer tie accruing after the conclusion of that agreement. It follows that the issue of whether the agreement with the nominated supplier was one which the Tenant was entitled to make must arise on the inquiry as to damages for breach of the beer tie.[44]The Tenant submits that even in these circumstances I should not allow an amendment which would entitle the Landlord to take this point on the inquiry as to damages as it would deny to the Tenant the ability to get any second action struck out as an abuse of the process of the court. So it might, but that is not, in my judgment, sufficient reason to refuse to allow the Landlord to take the point on the inquiry as to damages. If, in the event, the Tenant was unsuccessful in seeking an order striking out the second action the only effect of my order would have been to increase the costs and the time within which this dispute may be finally resolved. On the other hand if the Tenant did succeed in getting the second action struck out the benefit to the Tenant could be wholly disproportionate to any effect the delay in taking the point might have had on the Tenant.[45]Accordingly, in implementation of the judgment of Park J I will direct an inquiry as to the damages sustained by the Landlord in consequence of the failure of the Tenant to perform or observe the beer tie. I will direct the Landlord within 21 days to serve points of claim and grant him permission in that pleading and/or any reply to allege the implied term in the terms of paragraph 4A. The Tenant wishes to have the opportunity to serve points of defence. He should have it. Accordingly I grant the Tenant permission within 21 days of service of the points of claim to serve points of defence. I invite counsel for the parties to agree any other necessary or consequential directions for the proper conduct of the enquiry.

Summary Judgment for a declaration

[46]Counsel for the Landlord invited me to take the view that there was no real prospect of the Tenant defending the claim for the implication of the implied term for which he contends and to make a summary declaration that such implication should be made. I shall not do so. Although I am prepared to accept that there as a real prospect of the Landlord succeeding in establishing such an implication so also, for the reasons indicated in paragraph 40 above, I accept that there is a real prospect that the Tenant will successfully defend such a claim. Accordingly I shall not make any order such as is contained in paragraph 2 of the draft order sought by the Landlord.

Summary of Conclusions

[47]For all these reasons I shall:(1) summarily dismiss the defences under sections 2 and 18 of the Competition Act 1998 raised in paragraph 32A of the re-reamended defence of the Tenant;(2) grant the Landlord an injunction against the Tenant in the terms indicated in paragraph 35 above;(3) order an inquiry as to the damages sustained by the Landlord in respect of the Tenant’s breach of the beer tie, direct the service by the Landlord of points of claim on both defendants and grant the Landlord permission to include therein allegations comparable to those appearing on paragraphs 4, 9(d) and 12 of its proposed re-reamended particulars of claim in the action;(4) not make any declaration as to the implication of a term.[48]I will hear further argument on any consequential matters including costs.

Cited in 4 later judgments