Challenge to legislative competency of Scottish tied pubs legislation rejected by Lord Ordinary

About this case:

• Citation:
  [2022] CSOH 89
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Harrower

Petitioners Greene King Ltd, Hawthorne Leisure Ltd and Punch Taverns Ltd, argued that provisions of the Tied Pubs (Scotland) Act 2021 related to the reserved matter of competition and interfered with their ECHR right to peaceful enjoyment of their possessions. The provisions of the 2021 Act under challenge were not yet in force at the time of the hearing of the petition.

The petition was considered by Lord Harrower, with A O’Neill KC and Welsh, advocate, appearing for the petitioners and Crawford KC and Reid, advocate, for the Scottish government.

Anti-competitive agreements

In February 2020, Scottish Labour MSP Neil Bibby introduced a bill in the Scottish Parliament seeking to re-balance the relationship between the landlords of tied pubs and their tenants, who are obliged to purchase at least some of their alcohol from the pub-owning business on the premise that their rent would be reduced. On 5 May 2021, the Tied Pubs (Scotland) Act 2021 (TIPSA) received Royal Assent and introduced a new code of regulations for tied pubs and established the office of the Scottish Tied Pubs Adjudicator with powers to enforce and investigate breaches of the code.

The 2021 Act provided that the code of regulations must include particular provisions, including one requiring the landlord to make an offer to enter into a guest beer agreement with the tenant under certain circumstances, and a requirement to offer to enter into a “market rent only” lease with a tenant who requests it, subject to exceptions. It was highlighted by the petitioners that the Act defined a “pub owning business” as the landlord under the lease and thus the Act applied to every landlord of a tied pub in Scotland, whereas similar English legislation used the same term for a landlord of 500 or more tied pubs.

It was submitted for the petitioners that the regulation of anti-competitive agreements, which in principle was the nature of tied pub leases, was a reserved matter under the Scotland Act 1998. TIPSA purported to further regulate the terms and conditions of tied pub leases beyond the terms of the relevant block exemption for them incorporated into UK law. In any event, the Act was not evidence-based, posed a danger to investment in the sector, and would prevent landlords from offering a lower “dry rent” due to the automatic right to exercise the MRO option.

For the respondents it was submitted that TIPSA did not relate to the competitive structure of the market but to individual agreements between landlords and tied pub tenants. Further, as the code itself had not yet been drawn up, any ECHR challenge was premature as the proportionality of any interference had not yet been assessed.

Incidental to its purpose

Lord Harrower, in his opinion, observed: “In Mr O’Neill’s interpretation, once an agreement was properly classified as an ‘anti-competitive agreement’, then it followed that any regulation of that agreement would be reserved to the Westminster Parliament. Clearly, the reservation would not include, for example, general measures of taxation, or health and safety regulation, provided that these were targeted at individual employers, occupiers, and those acting in the course of a business, rather than specifically at the anti-competitive agreement as such.”

He continued: “However, the petitioners’ interpretation of the reservation would embrace any attempt to regulate the fairness of contracts, where the contracts in question fell to be classified as anti-competitive agreements. At any rate, this appeared to be the submission, even though the fairness of private contracts would generally be considered to fall within the devolved competence of the Scottish Parliament.”

On the purpose of the Act, he said: “It is not the purpose of TIPSA to prohibit tied-pub leases, and neither the MRO offer requirement nor the guest beer offer requirement prohibit product or service ties. In this respect TIPSA is quite unlike the competition law prohibition of anti-competitive agreements under Article 101 TFEU and its domestic analogue. The prohibition of anti- competitive agreements means that, unless exemption can be secured, they are unenforceable, consistent with the primary focus of the competition legislation being the protection of third parties, specifically, consumers.”

He went on to say: “This is not to suggest that TIPSA or the code may not have some impact on competition or the market for the supply of beer. However, in my opinion, these effects are incidental to its purpose, which is to regulate contractual fairness between landlord and tied-pub tenant. As such, and for the reasons already given, TIPSA does not fall within the reservation, and is not, at least not on the basis of that reservation, outside the legislative competence of the Scottish Parliament.”

Lord Harrower concluded on the ECHR argument: “Properly analysed, TIPSA leaves it to the drafters of the code to set out the circumstances in which its key provisions will come into play. Until that is done, and subject to one possible exception to be discussed presently, it is impossible to carry out any proportionality assessment, or specifically to conclude, as the petitioners contend, that TIPSA will effectively regulate the tied pub option ‘out of existence’.”

For these reasons, Lord Harrower refused the petition.