Pub Companies - Business and Enterprise Committee Contents

Memorandum submitted by Stephen Broadhurst


  This report is based upon very real personal and professional experience. It wasn't a very pleasant one. This report sets out to explain the events leading up to this statement, the key points being:

    —  The Tenant receives absolutely no real benefit from a beer tie.

    —  The role of Business Development Manager is critical communication link to the brewery but is grossly ineffective and biased against the Tenant.

    —  There are no other effective links of communication to anybody else within the organisation at any time, regardless of the situation or level of urgency.

    —  There are no complaints procedures.

    —  There are no dispute procedures.

    —  There are no appeals procedures.

    —  There is no disclosure or information forthcoming from the Brewery.

    —  There are no Codes of Conducts.

    —  There is a biased and unpublished "fine" procedure.

    —  Brulines is supposed to be unbiased. It is strictly biased in favour of the Brewery.

    —  If the public house is struggling to survive there are no concessions or help.

    —  The whole public house experience/involvement can potentially ruin lives for both individuals and families.

    —  The brewery fails to fulfil its service agreement but rigorously enforces the Tenants purchasing/rent side of the agreement.

    —  The Brewery's favourable and only solution to any dispute is to issue a Statutory Demand. End of.

1.   Personal Profile

  I am currently serving as a Borough Councillor in Macclesfield until 2009. I have also been elected onto the new Cheshire East Council until 2011. I am also a 43year old Business Consultant currently residing in Macclesfield. As part of my professional development I decided to try my hand at operating a public house. As a result of this (recent) experience I would like to submit the following evidence to the Committee.

2.   Introduction

  Public House referred to: Bate Hall Inn, 39 Chestergate, Macclesfield, Cheshire. SK11 6BX

  Brewery: Marston's (referred to as either Marston's or "the Brewery" for the benefit of this report).

  For the purpose of this report, Stephen Broadhurst is both the Author/Tenant that is referred to in this report.

3.   Time Line

  June 2006—Initial interest by Author expressed.

  June 2006—The Bate Hall Inn was registered as a limited company.

  February 2007—A "Square Deal" Agreement was signed.

  February 2007—Bate Hall Inn Ltd. opened for Business.

  January 2008—An "Open House" Agreement was invited to sign.

  March 2008—Bate Hall Inn Ltd Closed for business.

  April 2008—Marston's issues a Statutory Demand on Tenant.

  May 2008—Judge sets aside Statutory Demand.

4.   Recommendations

    —  There is urgent need for reinforcement of existing regulations as well as further regulation of the industry.

    —  An independent body to be established to arbitrate in any complaints/disputes.

    —  A full and factual Code of Practice be published relating to all the procedures, implications and events that can be encountered when signing the different agreements.

    —  The tied purchasing price to be reduced to the free trade purchasing price.

    —  Brulines to be completely unbiased.

    —  Insurance against legal proceedings be made available.

    —  A statute of limitations being established against further legal action being taken.

    —  The Business Development Manager title being removed as it is misleading.

    —  The Business Development Manager being stripped of power and reassigned relevant role and responsibilities appertaining to the position.

    —  Deposits are held in a neutral Bank Account and arbitrated by a third party.

    —  A clause to be written upon failure of a dray delivery a Tenant can purchase from a third party without repercussions.

    —  Clear and realistic purchasing targets be established.

    —  Fair rents be arbitrated by a third party.

    —  Clear and concise calibration records are made to cellar equipment.

5.   Background

  June 2006, the original intention was for the Author to purchase the lease from the previous landlord Mr R. The Bate Hall had been shut for approximately two months at this stage. Due to unknown reasons Mr R was prevented from reassigning the lease over to the Author. Again for specific details unknown, Marston's decided to bankrupt Mr R at Macclesfield County Court in November 2006. Two days after Mr R was made bankrupt, the Author was approached by the Business Development Manager from Marston's, with an offer to sign a lease and reopen the Bate Hall.

6.   Lease/Tenancy

  The Author signed a Square Deal Agreement in February 2007 this basically meant that either parties could give a 24hr notice to vacate the premises and the business. This was interim agreement signed under the guise of an Open House Lease (henceforth and for the purpose of this report will be known as a Full Tenancy Agreement) being made available. It was believed that the Full Tenancy Agreement was being drafted and would be made available within weeks. The Tenancy agreement is a 21 year lease where the lease cannot be sold onto another party for two years after signing. The lease can only then be sold on, but only with permission from the brewery. The County Court was made aware of the intention of the Author to buy the lease from Mr R in an effort to prevent a bankruptcy judgement on the day of the case. Marston's rejected this and Mr R was duly made bankrupt.

  If the lease cannot be sold on for any reason, the occupier has no choice but to continue to be responsible for the business ie Business Tax, Utilities, rent etc whether the Business ceases to trade or not.

7.   Advantage

  The one and only advantage known to the Author, to signing of the Full Tenancy Agreement is that it consists of rent and beer discounts. This is "designed" to incentivise the tenant to sign over from eg the "Square Deal" to a Full Tenancy Agreement. For example, upon signing the Full Tenancy Agreement the Bate Hall weekly rent would have reduced from circa £650 per week to £450 per week. On average a barrel/keg would reduce by £35 each. All agreements consist of a full drinks tie. The Full Tenancy agreement was made available but never signed by the Author.

  The Bate Hall finally opened on 21 February 2007 after being closed for 10 months. A deposit of £7,000 was given to Marston's to which the Author has no chance of recovering.

8.   Communication

  Communication is primarily with, and is impossible to have, from anybody within Marston's apart from with the Business Development Manager.

9.   Cash/Credit Account

  Marston's operated two accounts, a Cash and Credit account. A credit account allows two weeks payment grace from order with the total amount Direct Debited out of the Public House trading account.

10.   Cash Account

  The total beer order and rent to be paid in cash into the Brewery's bank account and must be made in full, before any dray delivery is made.

11.   Complications

  This causes complications if the business is struggling with its cash flow eg you can only pay for what you can afford or use a credit card to which, a further handling cost is imposed by the Brewery. There are instances where the beer delivered runs out at an inopportune moment ie the Bate Hall beer order was placed on a Monday for delivery Tuesday. There were instances where the cellar was running dry Thursday/Friday prior to a weekend. This was further compounded if an event was being held eg a birthday party the options under these circumstances were to either:

    —  close the business until the next "free" dray delivery;

    —  have an emergency delivery costing circa £80;

    —  borrow from a third party;

    —  pay by personal credit card;

    —  buy-in; or

    —  pick up from the brewery shop outlet initially located near Warrington.

  With the latter option being the "legal" and so, the preferred option. This process worked fine for the Bate Hall upon the first three occasions until Marston's cut this option off without prior warning eg the final option given to the Author when the Bate Hall ran dry, was to travel from Macclesfield to the Mansfield Brewery shop (with Warrington being the closest and initially used but still a five hour round trip), which is an 8hr round trip in order to purchase two kegs of lager which is not cost effective. Emergency deliveries were costly and sometimes could be up to three days later than required. Borrowing was frowned upon from a third party and impossible from a managed Marston's public house, even if it was local and "awash with drink". Buying in was deemed illegal and is subject to an undisclosed fine system. This was costly fine is imposed and non-negotiable, but landlords have to put up with it because it has to be balanced against the "nightmare" of any public house running dry. The nightmare being, if the Business runs dry, it will fail as it switches customers off when they cannot buy their chosen product and ultimately will ruin the business both in goodwill and future trading. If an event is on, the Tenant has a contractual obligation to meet and service that requirement. There are choices to be made but they are extremely risky from a business perspective.

12.   Fines

  Marston's operates a "fine" scheme that is not publicised or can be appealed against. The fine is usually imposed as a result of buying in from a third party. Marston's can impose any amount of monetary fine that it chooses, usually thousands of pounds, payable with immediate effect. If the Tenant refuses or cannot pay, the brewery will not supply any drink to the premises from that moment on. No prior warnings are given. The first a tenant knows about the fine is when they try to place a beer order for that week. This forces the tenant to either pay up or buy in, creating a viscous circle of breaking the tie for the business to continue trading. Breaking the tie is believed to be an offence and was partly the reason for Mr R being made bankrupt. A second reason for breaking the tie is for being on cash account. The Tenant can only pay what they can afford for that weeks delivery. If they require more drink for eg a party booking at the weekend, they are either forced to buy in or place an emergency delivery at a cost of (for Marston's) £80. If a delivery fails, the Tenant has no choice—under no circumstance are they allowed to buy-in—this seriously jeopardises and restricts the running of the business. It is also impossible to borrow drink from other group public houses especially the managed houses. Inevitably the only realistic decision faced by the Tenant is to buy-in. The Author of this report, on more than one occasion, was faced with literally begging the Business Development Manager to supply beer. This was compounded when the BDM was away on holiday and the Author couldn't find anybody else to beg to.

13.   Discounts

  The brewery discounts are a con. The Tenant is led to believe that the discounts are based upon a predetermined target been achieved. This target is supposedly based upon previous trading conditions and with mutual agreement between the Tenant and Brewery. This isn't the case. The Brewery does not only impose the target, it is also grossly misleading. The target is buried deep in the agreement together with a vague description termed "compounded barrelage". Compounded Barrelage is a number of barrels/kegs that make up to equal 36 gallons. There are 9 gallons in a barrel and 11 gallons in a keg. For example, and for ease of calculation, the Bate Hall target was 196 barrels, the "real" target is in fact 196*4barrells, as 9gallons*4barrells=36=a Compounded Barrel. So the Tenant has to buy 784 barrels in order to reach the stated 196-barrel target before qualifying for a discount. However, the discount is only applied to anything above that and not across the whole amount ie 788 barrels bought = 4 barrels above target, a very small discount is only applied to one barrel. Even with discount, a barrel/keg is not as cheap as buying it from a third party wholesaler. The discount mechanism is based upon quarters of the year and cannot be carried over to the next quarter. It is confusing especially when trying to factor in 11 gallon kegs into the equation, and Marston's are not forthcoming with any of this information or provide clarity. The Author was assured that he would get maximum discounts from day one of opening, he didn't.

14.   Third party wholesalers

  A third party wholesaler can sell a barrel/keg supplied from eg Marston's for circa £35 less than the Tenant pays directly to the Brewery. So even when the discount is applied, it still isn't cheaper than the same product supplied to and from a wholesaler.

15.   Bankrupt

  Marston's tried to bankrupt the Author on the 2 May 2008 due to disputed alleged rent and buying in allegations. They were unsuccessful. A Full Tie Tenancy agreement was made available for the Author to sign Christmas 2007; pressure was placed upon him to sign but was resisted by the Author due to the previous 9months experiences and dealing with Marston's. Thought must be given as to whether the Authors reluctance to sign the Full Tenancy Agreement played a deciding factor in Marston's next course of action. The proceeding action was a personal and professional nightmare. It is believed by the Author that this refusal started the chain of events that partly led to Marston's issuing the Statutory Demand. Communication to resolve outside of this bankruptcy process was made. Despite numerous written and verbal requests being made, each were either totally ignored or passed from the CEO to Director etc. downward until it arrived back down to the Business Development Manager. Marston's resolves disputes by going straight to bankruptcy proceedings ie by issuing a statutory demand. They tried to bankrupt the Author based upon three differing amounts of monies owed according to their internal accounting systems. Two of these accounts clearly showed some finances dating back to Mr R, to which they tried to attribute and make the author pay for. The Author refused. Despite two attempts to bankrupt the Author Marston's were unsuccessful. Marston's next available option is to try and obtain a County Court judgement against the author for alleged monies owed. This can be executed at any time and is not subject to a statute of limitations. As of yet, Marston's (four months after the bankruptcy case and six months after the Bate Hall closed at the time of writing this report), have not taken this option, but this report may result in action being taken against me as an individual. It must be noted that Marston's has the benefit of being able to apply the best lawyers to pursue cases whilst the Tenant cannot afford that particular luxury. In essence the Brewery would rather spend large sums of money trying to bankrupt an individual than spend some money trying to help them.

16.   Brulines

  Brulines effectively "police" the Tenant and are paid to do so by the Brewery. Brulines place monitors in the cellar to measure beer flow. Remote checks are made to compare brewery purchases against actual flows. If anything "suspicious" is identified a "surprise visit" by Brulines is carried out. This comprises of an audit of the cellar and the bar area in full view of customers. Photographs of the bar optics, spirits, fridge contents are taken and are compared to the purchasing history. Bar codes are also recorded for identification purposes. Any discrepancy is treated as "buying in" with no defence being able to submitted, or non-that anybody is prepared to consider. A sizeable fine is then imposed.

  The author was unable to retrieve any information from Brulines to enable him to defend himself in court. The Bate Hall meters weren't calibrated. Another party may not realise that this is a perquisite requirement; up-to-date calibration records have to be made.

17.   Conclusion

  The Brewery is in the business to sell beer, but they make conditions extremely difficult to purchase from them. Marston's don't seem to care as long as you have signed a lease and are "ultimately delighted" if a Full Tenancy Agreement has been signed, as they will get their money regardless of the pubs trading position and certainly pressurise the unsuspecting into signing it, with false promises of discounts and security. This report would go as far to state that the system is loaded in such a way that the Brewery is geared up for, and gets some sort of sick enjoyment out of bankrupting people, as it quickly moves to a statutory demand option without, and before, providing a reasonable business support package. Indeed, a Brulines representative cheerfully told the Author that "nobody ever wins against the brewery and to give up now!' The Author didn't. "Winning" is achieved by the Brewery, ultimately and in the first and only instance, by instigating bankruptcy proceedings against the Tenant, who is fighting against rules and fines that are unpublished and strictly biased in favour of the Brewery. This process is also designed to try and frighten the tenant. The Brewery has a bottomless purse when it comes to insolvency proceedings. It is the Authors opinion, that the practices outlined within this document are immoral, damaging, threatening, extortionate, potentially life ruining, arrogant, aggressive and what tantamounts to an overall disgusting malpractice by the Brewery, which have all been experienced and concluded from, within a relatively short time-scale. I am a professional Business Consultant and in any other industry, these practices would be at least deterred, be open and honest or at best made illegal.

  The contents of this report are considered true and accurate to the best of the Author's knowledge.

22 September 2008

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