House of Commons - Pub companies: follow-up - Business, Innovation and Skills Committee

Pub companies: follow-up - Business, Innovation and Skills Committee Contents

3 Policing of the Codes

The role of the BII

71. The BII is the professional body for the licensed retail sector, which has charitable status and a remit to raise professional standards. The BII describes itself as the industry's leading membership organisation reflecting the views of thousands of individual members across the UK.[94] Its Benchmarking and Accreditation Service (BIIBAS) accredits pub companies' Codes of Practice to ensure they comply with the Framework Code. Brigid Simmonds told us that BII involvement had given the voluntary system "real teeth".[95]

ACCREDITATION OF THE COMPANY CODES OF PRACTICE

72. The BII told us that membership of its Benchmarking Committee—which has the responsibility of accrediting the individual codes—is being increased from 11 to 20. It will also now contain a wider mix of licensees, pub company personnel and industry representatives. The membership of the Committee will be:

James Brewster (Chief Executive of The Licensed Trade Charity) (Independent Chair)
Bernard Brindley (Vice Chair)
Seven lessees/tenants
Seven Industry representatives
Four Pub Company representatives

Karl Harrison, a founder member of the Fair Pint Campaign, will be one of the lessee representatives.[96]

Dealing with breaches and sanctions

73. The new Framework Code of Practice states that if a lessee believes that a pub company has not properly followed the procedures set out in its Code the lessee or his representative will be able to:

send the BII a brief description of the circumstances with an explanation why the lessee believes the code has not been properly followed. The BII or FLVA will pass on this information to the company concerned and use its good offices to ensure, as far as possible, that there are no misunderstandings, or personality issues, that are standing in the way of a more fruitful dialogue between the company and the lessee or his representative.[97]

Brigid Simmonds explained that in the event that a pub company breaks its Code the BII would register any resultant complaint. Complainants would remain confidential but a summary of the information would be reported to the individual pub company and feedback would be given. Persistent code breaches would result in the removal of BII accreditation.[98] She described a 'persistent code breach' in terms of "repetition of a particular non-compliant practice or a cumulative picture".[99]

74. The BII told us that it was creating a website specifically on pub company Codes of Practice where all accredited Codes would be available online. In addition the BII will be facilitating an online and telephone process for registering complaints about breaches of the Codes. All allegations against each accredited company code, alongside details of which cases were resolved and which ones were not, will be published on the site.[100] The BII said that it was also considering a section on the website where pub companies could receive credit for positive innovations in their Codes.[101]

75. The BII told us that each major unresolved breach of code would count towards the withdrawal of BII accredited status. The following table produced by the BII indicates the number of major unresolved breaches in any one calendar year which would trigger the withdrawal of a company's accreditation:

Number of Pubs owned by the pub company Number of Breaches

Up to 100 3

101 - 250 5

251 - 500 10

501 to 1,000 15

1,001 to 2,000 20

Above 2,000 25

BII, Ev 46

76. The BII informed us that this had been benchmarked against other industries which suggested the cumulative picture should not exceed an agreed ratio of between 2-5%.[102]

77. Once a pub company has lost its accreditation, the assumption is that it would also lose its membership of the BBPA. It would then have to reapply for accreditation with the BII. At that point the Benchmarking Committee would need to see evidence of improvements to the pub company's systems and Code before reaccreditation would be permitted.

78. The BII informed us that in 2009 it dealt with eight formal allegations of breaches of accredited Codes of Practice, of which four were upheld as breaches. Two of these were resolved to the satisfaction of BIIAB and the lessees. Two others are the subject of ongoing dialogue with the relevant pub company.

79. The authority of the BII and its ability to enforce decisions have been questioned. One lessee, whose case is the subject of 'ongoing dialogue', told us that in their case "the BII have done all they can, and they are unable to force [the pubco] to act".[103] Ms Nicholls from the IPC said "The evidence is that this year alone there have been 100 cases in which code complaints have arisen. I have not seen anybody's accreditation being removed or anybody leaving the BBPA."[104]

80. It has also been argued that being evicted from the BBPA was not a sufficient sanction as some big pub companies, for example J.D. Wetherspoon, survives perfectly well outside of the Association while Greene King had recently decided to leave voluntarily.[105] Mr Darby did not accept this argument. He argued that prospective tenants and lessees now investigate in more detail which pub company they want to take a lease out with:

to be a successful pub company that attracts the best tenants and lessees one will have to pass muster with those individuals. If Marston's Pub Company or any other does not have a competitive, fair and transparent code of practice I am convinced that as time goes on it will be at a commercial disadvantage. Why would [a prospective lessee] go to a pub company that did not have an accredited code of practice and therefore certainty of protection?[106]

81. A cursory look at the BBPA website shows that there is no advice to lessees of any substance on buying a pub or even a link on the 'links' page to the websites that do give advice such as startingapub.com or buyingapub.com. This is in direct comparison to other trade associations such as the British Franchise Association (BFA) whose website[107] has information such as "Why choose a BFA member?" "Thinking of Buying a Franchise?" "How to buy a franchise". The BBPA must do more to highlight the importance to prospective lessees of choosing a pub company with BBPA membership and a BII accredited Code of Practice.

The independence of the BII and alternative options

82. The IPC and its member organisations have long doubted the independence of the BII. Karl Harrison was not convinced that the BII could be genuinely independent because of the "financial connections between pub-owning companies and the BII."[108] The BII told us that around 4% of its income came from corporate members, which includes the pub companies "plus some additional sponsorship for specific events from time to time."[109] Mr Neil Robertson, Chief Executive of BII, told us that "whilst by its makeup, constitution, and work programme, BII is not fully independent" he believed that its judgements were "impartial, balanced and sophisticated."[110]

83. Mrs Nicholls suggested that there was a need for "an entirely independent, separate board nominated by public interest bodies and consumer representatives" to deal with the issues of compliance. She concluded that the "industry cannot sit in judgment on itself."[111]

84. The ALMR offered the example of the Domestic Property Regulatory Structure which has a Property Codes Compliance Board (PCCB) as a potential model which could be replicated by the pub industry. The PCCB monitors the compliance of the property industry's Codes of Practice. The Board is independent and funded by a subscription on companies wishing to exploit the code logo which acted as a kite mark of quality and standard. The PCCB carries out pre-registration assessment of terms and conditions, practice and procedure as well as full compliance inspections and spot enforcement checks. Any breaches of the Codes are referred to a Compliance Committee and could result in removal of subscription. The ALMR informed us that this had "a very real financial penalty"[112] as providers were required to only use Code subscribers. Conveyancers, lawyers estate agents and end users were also recommended to only use Code subscribers. In addition to a Compliance Board, complaints about subscribers or operation of the Code could be referred to the Property Ombudsman. The ALMR concluded that the key differences between the Domestic Property Regulatory Structure and the BBPA's suggestion was:

i. the independence of the regulatory structure and 'regulator' itself: "the PCCB has only two industry representatives on it out of eight members. Public interest and consumer groups dominate and exclusively make up the Compliance Committee."[113]

ii. the existence of a separate means of independent redress: the Property Ombudsman.[114]

85. There are many similarities between what is proposed by the BII and the Domestic Property Regulatory Structure. The BII is trying to fill the role of an independent regulator and has appointed to its accreditation board lessees as well as pub company representatives. In addition the BII is funded mostly from training courses, although even this has been questioned as pub company lessees are the main subscribers to such courses.[115] The fundamental difference is that the pub industry has no separate means of independent redress in the form of an Ombudsman.

86. We note that the Government has recently announced the need for a monitoring and enforcement body to oversee the Groceries Supply Code of Practice.[116] This is something to be considered if the BII fails to monitor, effectively, pub companies' Codes of Practice. The Government remains open-minded about the creation of an Ombudsman for the pub industry saying that it was "too early to take a decision on whether Government needs to intervene."[117]

87. We believe that real impartiality rather than notional independence is the essential quality required of the BII. Any body set up to administer the accreditation of Codes or monitor compliance would be bound to be partially funded by pub companies as they own so many pubs. Furthermore, we do not believe the complaints procedure should be funded by the taxpayer. The BII must act impartially and be seen to do so. They are in the best position to administer accreditation of codes and to oversee and monitor compliance. The success of all of the reforms proposed by the industry hinges on the credibility and effectiveness of the BII.

88. We therefore give a cautious welcome to the BII's role in policing the Codes of Practice and its intention to publicise complaints and breaches on its website. We encourage the BII to do all in its power to publicise breaches widely. Although the sanctions available to the BII are limited and it has no power to fine, we have been told that the impact on a pub company of a decision by the BII to withdraw accreditation of a code would be extremely serious for that company.

89. We need to see clear evidence by June 2011 that, in practice, the BII has the necessary authority and impartiality to be effective as a policeman for the industry. If it fails to demonstrate such qualities, the case for regulatory intervention by the Government, for example the establishment of an Ombudsman or intervention by the competition authorities, will be very strong.

Enforceability of the Code

ROLE OF THE COURTS

90. Even if the BBPA Framework Code addresses some of our concerns, doubts remain over its enforceability. Brigid Simmonds, Chief Executive of the BBPA, explained that:

As far as we are concerned in any dispute it is absolutely essential that a breach of the code is taken into account by a court of law.[118]

She believed that the fact that agreements existed and had been signed by both the landlord and the lessee would be "clearly taken into account by any court of law or arbitration panel."[119] To support that position, the BBPA provided us with legal advice given to them:

In view of the fact that company codes will include obligations on the part of the tenant or lessee, the codes will constitute a legal contract between the parties, […]enforceable in the way that such arrangements are usually enforceable.[120]

91. However, this situation is very different for the existing Code. We have been provided with examples of pub companies describing their Code of Practice as "non-contractual" and that "deals done" under a Code were "concessionary and wholly discretionary."[121] Karl Harrison, representing the IPC, also highlighted a recent court case in which a pub company argued that a Code was not legally enforceable.[122] The transcript from the court case on 17 November 2009 quotes the pub company's lawyer as stating that:

there is a document described as the Punch Retail Charter, which is a document which sets out the standards that Punch applies in relation to its business, as it were: it is a business-wide charter. It is not a document which has contractual effect. It is not, as alleged […] a document which amends the terms of the lease. The provisions for rent review that apply in this case are the provisions of the lease.[123]

It is a […] a consumer friendly document, which is intended to set out what each party should expect of the other in their dealings with the other, but as I say, it does not have contractual effect and it cannot vary or amend the terms of any specific lease that applies to any specific tenant and it did not amend the terms of this lease.[124]

92. The BBPA responded:

our understanding is that this was a statement made by a lawyer without instruction from the company concerned who would not have wished to see their Code put in this light since whilst it may not be legally binding under the current circumstances, the company would certainly have regarded it as an obligation. However, this situation will not apply to company codes in the future compiled as they will be under the new pub industry Code and as such binding on both parties.[125]

93. Both examples led lessee groups to conclude that even with a new code the lease was still the primary document and the only one which was enforceable in court. Certainly there is a fundamental difference between an 'obligation' and a legally binding document. Fair Pint expanded on this:

The BBPA document states that because the Code of Practice will be agreed by both lessee and landlord the code will be binding and may be used in evidence in court. We are concerned about the lack of clarity on this point. Rights and obligations between lessees and their landlords are set out in the lease, which will remain the primary agreement. We therefore believe that any change to the legal obligations of either party should be enforced by a deed of variation to the lease.[126]

We are concerned that at least one major pub company is telling its lessees that its leases "will always take precedence" over the Code.[127] This is unacceptable.

94. The IPC believed that the Codes could only be legally binding if there was a "legal obligation to produce a Code and abide by its provisions i.e. a mandatory code or if the Framework Document was translated into the clauses of the lease itself."[128] In addition the IPC said that:

The Code or Framework could only be relied upon in Court if a breach of the agreement or a failure to abide by the Code could be shown to result in detriment to the lease. This in itself is an inherent weakness of the self-regulatory regime: it relies upon an individual lessee taking direct action to enforce their rights. A company could be persistently in breach of the Code or continuing to act in an unfair manner, but unless or until an action is taken against them in court, there is no restraint on their behaviour.[129]

95. Mrs Nicholls reminded the Committee that enforceability lay at the heart of the Monopolies and Mergers Commission (MMC) inquiry in 1989:

I take you back […] to 1989 and the MMC which said that the lack of an enforceable - they underlined that word - code of practice meant that brewers could limit the economic independence of tenants and reinforce their position of economic strength. If you substitute "pub companies" for "brewers" you are in exactly the same situation. We have not moved forward since 1989; we have no enforceable code of practice in this industry.[130]

It is over twenty years since the MMC Report and yet the situation remains remarkably similar. We set out below the relevant extract from that report:

At present, the brewers, under arrangements negotiated between The Brewers' Society and the NLVA, consider that The Brewers' Society Code of Practice provides their tenants with a sufficient degree of security. This may be so in some respects, but inadequately in the light of present circumstances. It is drafted in the form of general principles, and does not impose binding commitments on the brewer/landlord, and it can be and is disregarded in certain circumstances. We therefore recommend that brewers should be required to incorporate in their tenancy agreements and leases which contain any form of tie in respect of beer, provisions binding on both parties, as set out in what we recommend should be a revised Code of Practice. This Code of Practice should initially be negotiated by the Director General of Fair Trading with all interested parties.[131]

However, when we put it to Brigid Simmonds that a mandatory code would provide greater clarity she responded:

I have never been in favour of a statutory versus voluntary code. I think you will find that a statutory code provides less information and a lower standard than a voluntary one.[132]

96. While it may be the case that a Statutory Code would be more limited, this argument cannot hide the fact that the level of mistrust over enforceability is a serious impediment to progress on reform. The BBPA, as a matter of urgency, need to do far more to convince us and lessees that Codes of Practice are legally enforceable.

97. The BBPA's assertion that Company Codes of Practice will be legally enforceable has yet to be proved and we are not in a position to reach a view on this issue; case law will determine this. Unless the BBPA can prove beyond doubt that the Codes of Practice are legally binding, incorporating the Code into the lease would be the only remaining option. We urge our successor committee to keep this issue under review and to return to it if evidence emerges of the unenforceability of the Codes.

TIMINGS FOR CHANGE

98. The BBPA said it hoped that all company codes could be brought into line with the industry Framework Code by June 2010 and that it hoped to have the "full system in force next year [2010]."[133]

99. The BII said that:

The BIIBAS Steering Committee felt that we should allow the new processes and policies of the BIIBAS scheme to become established during 2010 and that in the second half of the year we would undertake an independent lessee/tenant survey which would determine how well the pub companies were abiding by their codes of practice. The results of such a survey would be published on the BIIBAS website.[134]

100. The IPC noted that:

there is no clear timetable for implementation at an individual company level. The Framework sets an indicative timetable for companies to develop their own codes of practice and have them accredited but this is not set in stone and extensions are already being talked about for smaller companies including the regional brewers operators. Crucially, no timeline is set for the individual company Codes to be in place and in force, nor is it made clear how and when the Codes will be applied to existing leases.[135]

101. The Codes of Practice are moving in the right direction, but they are not yet in place. We will hold the BBPA to its timetable for implementation for the larger pub companies. Any delay beyond June 2010 which is not accompanied with a justifiable reason, will not be acceptable. Furthermore, after the assurances it has given to the Committee, the BBPA not individual pub companies will be held responsible if delays and slippages occur.

102. We recommend that the industry produces a project plan for change with key stages at which it can be marked against achievement. This would make it easier for the industry to see how it is progressing and for our Committee, our successor Committee and the Government to be confident that real change is happening. If slippage in the project plan occurs the Committee and Government must be provided with explanations and industry plans for action to get the timetable back on course.

94 BII website: http://www.bii.org/home Back

95 Q 80 Back

96 Ev 46 Back

97 BBPA, Framework Code of Practice on the Granting of Tenancies and Leases, January 2010, para 39 Back

98 Q 68 Back

99 Q 69 Back

100 Ev 45 Back

101 Ev 45 Back

102 Ev 45 Back

103 Unpublished Back

104 Q 184 Back

105 Ev 80 Back