14 Feb 2023
When the Pubs Code was introduced for tied tenants, there was an unanticipated pent-up demand for the Market Rent Only (MRO) option to go free of tie. Combined with uncertainty about the application of this new law, it quickly led to a high number of arbitration disputes. A backlog of tenant disputes over the compliance of MRO terms offered to them, with complaints of delays, led to my appointment as Deputy Pubs Code Adjudicator at the end of 2017. I was subsequently appointed to the role of Pubs Code Adjudicator, heading up the PCA in 2020.
At their peak, in mid-2018, the number of open arbitrations reached as high as 118. The then PCA and I arbitrated personally to seek to bring consistency to decisions in respect of this new law. However, we clearly also needed to invest time in regulating the pub companies’ compliance to prevent disputes, not only in resolving them once they arose. From late in 2018 therefore we began routinely deploying our powers to appoint alternative arbitrators, who were recommended to us by professional bodies. Case management remained in-house, but that administration burden absorbed precious staff resource.
In December 2021, Ciarb was awarded the contract to manage the PCA arbitration service. I cannot delegate my appointment power, but Ciarb manages the entire process and makes a recommendation to me of a suitable arbitrator. I am very pleased to say that referrals for arbitration have dropped significantly over time, and improvements in case progression, together with more clarity in respect of key aspects of the law have reduced the number of open arbitration cases. As of December 2022, there were only 16 open arbitration cases.
Why is there a Pubs Code?
The Parliament introduced the Pubs Code in 2016 to bring fairness into the business relationship between tied pub tenants in England and Wales and their pub company (where it owns 500 or more tied pubs). A tied pub tenant is contractually obliged to buy their alcohol or other products or services from the pub company landlord.
Regulating the industry was the government’s response to seeing inequalities of bargaining power in these contracts cause problems in the treatment of tenants and the share of profits gained by the pub companies. The Pubs Code stands on two core principles:
- That there should be fair and lawful dealing by pub companies towards their tied tenants, and
- That tenants should be no worse off than if they were free of tie.
What is the role of the Pubs Code Adjudicator?
The Pubs Code Adjudicator wears two hats, both as regulator and statutory arbitrator. As regulator, the PCA ensures compliance with the Pubs Code. As statutory arbitrator, the PCA has a duty to arbitrate Pubs Code disputes personally or to appoint an alternative arbitrator to do so. Both roles have provided opportunities for innovation.
How does the Pubs Code ensure fair treatment of tied pub tenants?
The Pubs Code delivers on the principle of “fair and lawful dealing by pub companies toward their tied tenants” by requiring transparency by the pub company, throughout the business relationship.
Statutorily required information (for example, evidence supporting an analysed offer for all rents proposed) puts negotiation strength in the hand of the tenant. And every time the tenant renegotiates their rent under the Pubs Code, they can request, and accept if they wish, an offer of a free of tie tenancy on a market rent (known in the Pubs Code as the Market Rent Only, or MRO).
How does the Pubs Code support parties when the relationship breaks down?
The statutory dispute resolution mechanism for Pubs Code disputes is arbitration. The default arbitration rules are those of the Chartered Institute of Arbitrators (Ciarb). The PCA has powers to gather information and documents from the arbitration, so they can maintain oversight of pub company compliance issues in that way. The distinctive feature of Pubs Code statutory arbitration is that the parties have no right to choose their arbitrator. The Act places that matter solely within the jurisdiction of the PCA.
The Pubs Code legislation operates as the arbitration agreement. Many Pubs Code rights are event-driven, with strict statutory timescales. There are inflexible deadlines for referring disputes to arbitration.
Why does the PCA publish awards?
The default confidentiality of arbitrations presented an early challenge to Pubs Code regulation. Some of the six pub-owning businesses were respondents to sequential arbitrations in respect of similar issues, and therefore privy to information about how the PCA had approached Pubs Code arbitrations, but tenants were not. Publishing advice to the whole industry could not level the information playing field sufficiently or in a timely way. Well-resourced and professionally represented pub companies could learn and react to the outcome of arbitrations, but since the award did not bind them in respect of the same issue raised by another tenant in other proceedings, as arbitrator it often felt like Groundhog Day. So, when, for example, the Heineken pub chain, Star Pubs and Bars, successively but unsuccessfully argued the same points of law in different arbitrations, the claimant tenants were unaware. Star’s behaviour featured in my first statutory investigation, in which I reported in 2020 I had found twelve separate breaches of the Pubs Code. The potential to deter the often unrepresented tenant from using arbitration, given the cost, delay and stress, was clear. The Pubs Code arbitration process risked replicating the very imbalance of knowledge and power in the business relationship that the Code had been designed to address.
The PCA, as well as the Secretary of State, took the view that the pub companies should waive confidentiality in respect of arbitration awards, and in 2018, agreement in principle to do so was reached with all six of them. This was a big win for transparency. Since then, the PCA (after obtaining appropriate consents) has published awards, with redactions (if necessary), and case summaries. Tied tenants and their advisers, as well as all the pub companies, now have access to the same information about how particular issues have been addressed in Pubs Code arbitrations. We are an example of what the Law Commission observed in its review of the Arbitration Act 1996 when discussing confidentiality: “Elsewhere, there is a trend towards transparency, at least in some respect, such as the publication of awards.”
I am very proud of the efficient statutory arbitration service the PCA now offers. It is the result of much learning from dealing with multiple challenges.
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