2021_6_Summary of Pubs Code Arbitration Award_Non-MRO

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Publisher’s Note: The Pubs Code Adjudicator encourages openness and transparency in the operation of the Pubs Code etc. Regulations 2016. Publication of awards made in Pubs Code arbitrations, or summaries of those awards, enables the industry to better understand previous decisions and consider how the Pubs Code is being applied in individual cases. Neither the Pubs Code Adjudicator nor an arbitrator is bound to follow published awards in applying the law, but such awards can be used to support the industry’s consideration of the proper interpretation of the Pubs Code. Parties are encouraged to take independent professional advice about their situation.

The outcome of an arbitration is based on its own facts and the evidence produced in the case and is not binding in other cases where the landlord and tenant are not the same. The Pubs Code Adjudicator does expect a regulated pub-owning business to consider its understanding of the law in light of each award that makes a finding on the interpretation of the statutory framework and to adjust its behaviour towards tenants as appropriate. The publication of an arbitration award or an award summary does not mean the Pubs Code Adjudicator endorses the decision and it does not form legal advice about any issue.

This summary is provided to assist in understanding the arbitration decision. It does not form part of the decision or reasons for the decision.

Since this arbitration referral, the PCA has issued statutory advice on the time limit for referring a non-MRO dispute to the PCA for arbitration, which can be read here.

1. Summary of Findings

This preliminary award considers a number of issues regarding whether the arbitrator had the jurisdiction to hear the Tied Pub Tenant’s (“TPT”) substantive claims. In this award the arbitrator found that the TPT did have the right to bring a referral and that the arbitrator did have the jurisdiction to determine that referral.

2. Background

The TPT is the tenant of a public house (the “Pub”) under a 25-year lease which commenced in October 2010 and provided for a rent review every 5 years (the “Lease”). The TPT took occupation of the Pub following an assignment of the Lease in July 2019.

In March 2019 the Pub-owning business (the “POB”) sent a letter to the previous tenants which comprised a Rent Assessment Proposal (the “RAP”) in respect of the Pub, under s.19(1)(a) of the Pubs Code etc Regulations 2016 (“the Pubs Code”). The RAP was intended to become operative in October 2019, being the date of the second rent review under the Lease.

In July 2019, the Lease of the Pub was formally assigned to the TPT. Then in October 2019 the TPT and the POB signed a deed of variation of the Lease to the Pub confirming a new agreed rental level and various supply discounts (the “Deed”).

In April 2019 the Pubs Code Adjudicator (the “PCA”) published the Beer Waste and Duty Guidance (the “Guidance”) which came into effect on 1 July 2019. In December 2019 the PCA published a series of arbitration awards (the “Awards”) dealing with issues around beer wastage. In June 2020 the TPT sent a notice to the POB under section 49(2) of the Small Business, Enterprise and Employment Act 2015 (the “2015 Act”) alleging that the RAP had not been compliant with the Pubs Code, that the POB had breached the duty fair and lawful dealing, and that the POB had failed to give accurate information.

The allegation was rejected by the POB, and in August 2020, the TPT referred the dispute to the PCA for arbitration.

3. Issues

The POB raised a number of issues which the arbitrator agreed they would consider before the substantive claim made by the TPT would proceed:

  1. Legal Standing Issue: Did the TPT have the right to make a referral to the PCA about the March 2019 RAP given that the TPT did not take the assignment of the Lease until July 2019?
  2. The Deed of Variation Issue: Was the effect of the parties executing the Deed in October 2019 to bring the rent assessment process to an end under Regulation 22(2)(a)(ii) of the Pubs Code?
  3. Waiver Issue: If it was the case that the rent assessment process had been brought to an end either by the Deed and/or by the TPT then paying the agreed revised rent for the Pub without complaint, had the TPT waived their right to make a referral to the PCA regarding any alleged breach of the Pubs Code in relation to that rent assessment process?
  4. Limitation Issue: Was the TPT out of time to make this referral under s.49(4) of the 2015 Act?
  5. Jurisdiction Issue: If the arbitrator found in favour of the POB on any one or more of preliminary issues (1) to (4) above, did the arbitrator then have the jurisdiction to decide the TPT’s claims?

4. Arbitrator’s Findings

The POB contended that the TPT was not in fact the TPT at the time that the RAP was served in March 2019 (with the Lease then assigned to the TPT in July 2019). Under section 48 of the 2015 Act only a tied-pub tenant can make a referral, and the POB argued therefore that the TPT did not have standing to bring the referral in respect of a RAP served before they were a TPT. The POB submitted that the RAP had been correctly served on the tied pub tenant at the time and they had no additional obligation to serve the RAP on the new TPT taking the assignment of the Lease.

The arbitrator held that the POB had not discharged their burden to prove that the TPT did not have legal standing to make the referral. Whilst the TPT did not have legal standing to make a referral until July 2019, the RAP was still only a proposal which the previous tenants had not agreed at that time, and the TPT gained legal standing to make the referral upon taking the assignment of the Lease.

4.2 The Deed of Variation Issue

The POB claimed that the Deed had the effect of ending the rent assessment process. This was accepted by the TPT.

The arbitrator therefore held that the effect of the Deed was to bring the rent assessment process to an end by the operation of Regulation 22(2)(a)(ii) of the Pubs Code.

4.3 The Waiver Issue

The POB claimed that because the TPT had paid the revised rent from October 2019 (when the Deed was signed) until June 2020 without complaint that the TPT had given up their right to make a referral about the compliance of the RAP.

The TPT argued that signing a Deed to complete the rent review process was not an acceptance that the RAP was compliant with the Pubs Code and that it did not rule out issues of non-compliance being discovered at a later date.

The arbitrator referred to the Black’s Law Dictionary definition of the doctrine of waiver which states a party must have: “the voluntary or intentional relinquishment of a known right… based on the principle that… when given full knowledge, the person should be allowed to decide for himself.”.

The arbitrator held that the TPT had not given up their right to make a referral. They found that waiver by contract or deed did not apply as clear and express wording that a specific right was being abandoned by the TPT would have need to have been included in the Deed. Waiver by election did not apply as the TPT did not know when the Deed was signed in October 2019 that they had the grounds to make a referral. Finally, waiver by estoppel did not apply as the matters of which the TPT complained had not by then been raised between the parties, so no dispute between the parties capable of being referred to the PCA had arisen.

4.4 The Limitation Issue

Section 49 of the 2015 Act provides that a TPT can only refer a dispute after the expiry of the period of 21 days beginning with the date on which the TPT notifies the POB of the alleged non-compliance. Section 49(4) also prohibits disputes being referred to arbitration more than 4 months after the date on which the dispute could first have been referred.

The POB claimed that the TPT’s referral was out of time. They argued that the strict time limit imposed by the relevant legislation and supported by the PCA’s technical guidance and related resources should be adhered to so as to prevent POBs being exposed to referrals for an indefinite period of time.

The TPT claimed that they did make the referral in time as they had made the referral within 4 months of when they first had knowledge that the March 2019 RAP may have been non-compliant. The TPT argued their date of knowledge on the non-compliance was June 2020 when they took independent advice and became aware of the PCA Guidance about beer duty and wastage and the Awards.

The arbitrator held that the TPT was within time to make the referral to the PCA as they had made the referral within 4 months of the dispute arising between the parties. The arbitrator considered that the relevant dispute arose when the POB rejected the TPT’s complaints about the RAP which he made in June 2020 and until that date no dispute capable of referral existed.

4.5 The Jurisdiction Issue

As the arbitrator had rejected the POB’s arguments that the TPT was not permitted to make this referral about the compliance of the RAP, the arbitrator then held that they would have jurisdiction to continue to determine the TPT’s substantive claims in a future award.

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