Examination of Witness (Question Numbers
200-219)
MRS KATE
NICHOLLS, MR
KARL HARRISON,
MR SIMON
CLARKE AND
MR GARRY
MALLEN
8 DECEMBER 2009
Q200 Mr Hoyle: And the equipment
is questionable?
Mr Clarke: I had Brulines' calibration
two weeks ago in my pub, The Eagle. Obviously, you have had plenty
of evidence about my pub before. It was a Brulines technician
who undertook the calibration test. He dispensed 14 pints from
eight of our pumps, I believe, and all the time it was going on
the proceedings were live with HQ and an analyst sat in front
of a screen and said that, yes, he had just pulled half a pint
through a particular pump. When we got the final report three
days later the system failed to record five of the 14 pints they
had pulled. Bear in mind that this was when the pub was closed
and other than us there was nobody else to interfere with the
dispensing or anything like that. Their own technician and analyst
were totally unhindered; we gave them free rein to do what they
considered to be their job. The result was a 33% or 40% inaccuracy.
Q201 Chairman: That is why you have
so much beer in your cellar?
Mr Clarke: We still have 2,000
gallons sloshing around in the cellar.
Q202 Mr Hoyle: Is it fair to say
there is absolutely no faith in the Brulines equipment and you
have proved it has been totally discredited?
Mr Clarke: As far as I am concerned
it is an utter joke.
Chairman: I should warn Mr Hoyle that
Brulines is as litigious as Ted Tuppen.
Q203 Mr Hoyle: But we are only repeating
the evidence we have received. There is something wrong here.
Surely, even Brulines would hold up their hands and say they ought
to look at it because there is something seriously amiss.
Mr Clarke: We have put evidence
to the Committee. We have had anomalies in our records. I have
queried them and at the flick of a switch they convert what they
have down as a water allowance into beer and what they have had
down as beer is possibly some gas in the pipe that has turned
round the meter and therefore it has registered a half-pint.
Mr Harrison: In relation to Brulines
the argument is that something is needed to police the beer tie.
If there was flexibility, fairness and freedom of choice as IPC
advocate then as in the free of tie sector the need to police
the system might not exist. Having said that, if you are to police
any system in a time when we are used to things being extremely
accurate—all of us have satnavs in our cars that can place
us to within a metre of any point on the globe—a 40% degree
of inaccuracy on the part of a company that makes millions of
pounds in profits a year is completely unacceptable. If they want
to put it on the market they should make proper investment in
it to make it work.
Q204 Mr Hoyle: Let me put the reverse
of that: is there any benefit to you of having the flow monitoring
equipment?
Mr Clarke: There is no benefit
to me whatsoever. I suppose they would use the argument if I had
a number of pubs that I could oversee dispensing, but in my case
I am behind the bar for 35 to 40 hours a week. I know when I am
busy; I do not need them to tell me that a week later. It is of
no benefit to me whatsoever. Only two weeks ago I was in a Punch-managed
pub, of which there are 1,000. They do not have this system fitted
in that managed pub. It might be in some but not that one.
Q205 Mr Hoyle: Therefore, the flow
monitoring equipment is about as effective as European fish quotas,
in which case we are looking for a new system. Consideration has
been given to installing video cameras on every fishing boat so
everything is recorded and can be viewed at any time. Do you think
that may be a way forward for everyone?
Mr Clarke: I suppose it is an
option.
Q206 Mr Hoyle: I presume it is better
than the one you have now?
Mr Clarke: I do not believe that
is an option. As Mr Harrison put it very eloquently, if there
were no tie there would be no necessity to try to police it.
Q207 Miss Kirkbride: Although I am
aware this point was made in our report, I just want to satisfy
my own mind why it is fair to insist that pubcos offer choice
of tie or free of tie. I completely sympathise with you about
the way pubcos have behaved badly in that you cannot properly
enforce your leases and all the stuff we have just been hearing.
I suppose that in terms of being obliged to offer a choice their
argument would be that this is their business and their property;
they have a business model in which they offer these services
in return to landlords and it undermines that business model if
they do not achieve the scale over all their properties; further,
we do not go after other people's private business practices.
In a way it looks slightly vindictive—I understand why given
the way they have behaved in the past—to say that not only
should they have more enforceable leases but they should also
be required to change their business in a way that could undermine
it. Tell me why it is fair and then I will be happier.
Mrs Nicholls: First, we are not
asking them to change their business model. If one did that one
would be saying that it was no longer legal for them to tie. You
are not saying that; we are not saying that. We say that if you
want a tie it confers on you a duty of care to ensure fairness
to the people on whom you impose the restriction. If you genuinely
offer benefits and the tie is of value those lessees will not
exercise that choice.
Q208 Miss Kirkbride: But on the basis
that they properly did what you have just said why is it fair
and right to go further and say that they must also offer this
alternative business? If they do what you have just said why do
we have to go further and strip them of the right to insist on
having the tie?
Mrs Nicholls: Because there are
people who do not offer fairness, flexibility and freedom of choice;
they impose onerous conditions and arguably the tie does not work
in that model or on those premises. Therefore, the lessee should
be given the choice. They would still have a business model; they
would still own the property and get dry rent. The balance of
risk would change.
Miss Kirkbride: But if they dealt with
the first bit they would not have to deal with the second bit?
Chairman: This is the old Irish question:
we should not be starting from here.
Q209 Ian Stewart: I have been asked
to press you on the AWP tie. On behalf of the BBPA we heard Alistair
Darby give what appeared to be compelling evidence that the AWP
tie benefits publicans. The Committee has been concerned about
the abuse of that system. Can you say how the AWP tie can be made
fairer? Does the suggestion by the BBPA go far enough?
Mrs Nicholls: The Select Committee's
recommendation in 2004 was very clear. The benefits of the tie
are not outweighed by the restrictions imposed as a result of
it. The BBPA suggestion does not go far enough because it does
not meet the fundamental recommendation that the AWP tie should
go. Whatever one thinks of the OFT's recent report on CAMRA's
complaint, it found that lessees were £3,000 a year worse
off as a result of the AWP tie. That is the answer to whether
or not it benefits a lessee. The OFT says the lessee is £3,000
worse off.
Mr Mallen: In 2004 there was a
request that it be removed; in 2008-09 that request was repeated.
As Mr Harrison said yesterday, this was mooted as low-hanging
fruit. It appears to have risen to the top of the tree. The BBPA
appear to suggest that the lessee can operate his business but
he is not capable of managing his own machines. Perhaps if they
provided managers we would all be better off; we could sit back
and take a share of the profit. In my view and presumably that
of the IPC the publican should be entitled to manage his own business.
For years they have taken upfront access payments; they have refused
to allow machine operators onto their list unless they pay their
weekly rents; they have taken a disproportionate amount of the
machine income over four years. I do not believe we can leave
the BBPA to manage these machines on our behalf.
Q210 Ian Stewart: Do the other witnesses
take that view?
Mr Clarke: I do not have machines
because I do not recognise any value in them.
Mr Harrison: I listened carefully
to what Mr Darby said, but his theory that one's income falls
if one manages the machine oneself means that one needs 200% income
once one has given him the 50% split in order to stand still.
I have information here from one of the major pubcos. We are told
that this is becoming fairer and fairer, but let me read it to
you: "On AWP terms, if the net take is insufficient to pay
the rental this is deducted from the tenant's share. If the tenant's
share reduces to zero any outstanding balance is paid by Enterprise
Inns." Therefore, in that particular case the tenant has
to lose all his money from the failure of the machine which is
in the management of the pubco before the latter chips in and
pays anything towards it. That is not our experience; we do not
see it becoming fairer. It is a lucrative form of income for the
pubco.
Ian Stewart: What about the 331/3-331/3-331/3
system?
Q211 Chairman: The machine owner,
the pubco and the publican each get a third?
Mr Harrison: It comes back to
choice, does it not? Why can we not be offered a range of choices?
Some publicans will feel more comfortable perhaps with that arrangement;
others will want to manage their own machines because they are
very good at it, but at the moment the choice is not there.
Q212 Chairman: I want to rattle through
a few questions before we end. I refer to the repeal of the Competition
Act 1998 (Land Agreements Exclusion and Revocation) Order 2004
and the EU block exemption. It sounds immensely technical—one
almost falls asleep at the mention of it—but it is probably
rather important, is it not?
Mrs Nicholls: I would not want
to overstate its importance, but it is a sensible and pragmatic
step forward. If you will pardon the pun, it is a hangover from
the previous competition regime and basically is used to exempt
vertical agreements and leasing agreements from the provisions
of the Competition Act 1998. Basically, it creates an anomaly
between European and UK law which is one that the Competition
Commission and now government appear to recognise. Under the EU
block exemption the EU Commission's guidelines are clear. Even
if one falls within the scope of it one should individually scrutinise
oneself and one's agreements to ensure one satisfies the criteria
for exemption. The land agreements exclusion order rides roughshod
over that and says that basically there is a blanket exemption
and you can forget about the need to self-assess and ensure the
specific criteria apply; you are automatically covered. Because
of it we have seen the creeping extension of exclusive purchase
agreements and restrictions, longer terms, upfront access payments
and the extension of the beer tie to other products. Therefore,
the two go hand in hand entirely. The land agreements exclusion
order would simply bring us back into line with Europe and require
companies to scrutinise themselves on an annual basis and self-assess
whether or not they comply with competition law. The government
is minded to rescind it. We support that. The only thing we disagree
with is that April 2011 sounds a long time away. As to the EU
block exemption, we are happy to provide you with the details
of what we have been doing in Europe at that level, but obviously
there is an issue there. Both of those issues are extremely important.
Q213 Chairman: As to the EU block
exemption the de minimis level would again be the idea, would
it not?
Mrs Nicholls: Exactly. At the
present those levels are set far too high, particularly where
there is a network of parallel agreements.
Q214 Chairman: Is it right that the
EU block exemption is 5%?
Mrs Nicholls: Yes. Both of them
are important issues but they do not obviate the need for a market
investigation as per the Committee's recommendation.
Q215 Chairman: It is useful but not
world-changing?
Mrs Nicholls: Yes.
Q216 Chairman: The last question
is about restrictive covenants. There is some speculation that
Punch, Enterprise and Marston's have ceased to use restrictive
covenants, at least for the time being. Is that the case? How
long will it last? What effect has it had?
Mrs Nicholls: We have no particular
information about that. I am aware that warm intentions have been
expressed. It is not an issue on which the IPC is currently focusing.
It is an issue for our member CAMRA and they are pursuing it independently.
Q217 Chairman: Should we stick to
our call for a ban on all restrictive covenants in the future
use of pubs or should we say instead that consultation with local
communities and local authorities before covenants are imposed
would be acceptable?
Mr Clarke: The important point
is that overall the IPC does not have a common voice on that.
If you want to know what the individual parties think then we
can safely say that Fair Pint very much backs that recommendation
and certainly CAMRA's initiative.
Q218 Chairman: The reason I think
it is important—I do not know whether the Committee agrees
with me—is that it is just another manifestation of the
way the market is not being allowed to speak in your sector. Recently
I was asked by a brewer about my vision of the industry in 20
years' time. I said that it was one in which the market operated
freely and fairly, nothing more than that, and we must strive
to reach that position. I was interested by your suggestion that
pressure might be applied by the BBPA and others. Does the BBPA
talk to you individually and collectively? What is your relationship?
Mrs Nicholls: BBPA talks to us
individually. There is a dialogue between ALMR and BBPA as recognised
national trade bodies. I have not been put under pressure by the
BBPA but references have been made by individual member companies
to ALMR. There is no dialogue at all between the BBPA and IPC.
Q219 Chairman: To ask a silly question,
would it be a good thing to have such a dialogue?
Mrs Nicholls: Absolutely. We are
more than willing to have a dialogue. When ALMR first said back
in June that we ought to have mediation to try to sort it out
ourselves that was the whole purpose of it. We are willing to
talk to anybody at any time in order to pursue the objectives
we have outlined.
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