P & S Amusements Ltd v Valley House Leisure Ltd & Anor

A beer-tie covenant in a commercial lease remains enforceable even where an ancillary pricing provision is ineffective because the nominated supplier is not a party to the lease. The tenant’s “requirements” refer to the quantities and kinds of beer required, not the prices the tenant wishes to pay. An ineffective pricing term does not deprive the core purchasing obligation of effect. A landlord and tenant ordinarily remain in a commercial, arm’s-length relationship; nominating a beer supplier and receiving payments calculated by reference to the tenant’s purchases did not, on these facts, create fiduciary duties.

P&S Amusements Ltd let a bar and nightclub under a 20-year lease containing a beer tie. The tenant was required to purchase designated beers from the landlord or its nominated supplier. After the original brewery arrangement ended, P&S nominated Carlsberg-Tetley, but the tenant continued buying from the Scottish & Newcastle group.

P&S sought an injunction and an inquiry as to damages. The tenant counterclaimed for an account of discounts paid by the brewery to P&S, alleging that P&S owed fiduciary duties. Competition-law issues had been split off for later determination. The central issues were whether the tie remained binding, whether earlier alleged Budweiser purchases justified damages, and whether the landlord was accountable for the discounts.

1. Beer tie enforceability. Subject to the unresolved competition-law issues, the tenant remained bound by the beer-tie provision. Clause (1)(a) required the tenant to purchase its requirements of designated beers only from the landlord or its nominated supplier, while clause (9) permitted the landlord to change the nominated supplier. The nomination of Carlsberg-Tetley was therefore effective, and the tenant was in breach by continuing to buy from the Scottish & Newcastle group.
2. The word “requirements” concerned the quantities and kinds of beer required, not a desired level of discount. The lease dealt with pricing separately in clause (3)(a), leaving no basis for importing pricing into the core purchasing obligation.
3. The pricing tailpiece in clause (3)(a) could not regulate the price charged by a nominated supplier which was not a party to the lease. That ineffectiveness did not invalidate clauses (1)(a) and (1)(b). The core tie remained operative. The absence of a document headed “standard trade price list” made no difference: a document performing that function was sufficient.
4. Assuming, without deciding, that the landlord’s power to nominate a replacement supplier was subject to an implied restriction against arbitrary, capricious or irrational exercise, the nomination was valid. P&S was rationally seeking to preserve the commercial benefit which the original arrangement had provided, and the nomination restored a position contemplated when the lease was granted.
5. The counterclaim for an account of brewery discounts failed on the fiduciary-duty basis. The landlord-tenant relationship was commercial and arm’s length. The nomination mechanism did not make P&S the tenant’s agent, and the receipt of discounts did not convert that relationship into a fiduciary one. English v Dedham Vale Properties Ltd was distinguishable because it concerned a self-appointed agent, while Reading v Attorney-General involved fraudulent conduct and was too remote.
6. No inquiry as to damages was ordered for the alleged pre-2002 Budweiser breaches. The evidence was obscure and did not satisfy the balance of probabilities, including because the tenant’s evidence of stress purchases or an informal release of the tie could not be rejected with sufficient confidence.
7. The court determined liability issues only. It did not grant the injunction or finally dismiss the counterclaim because the outstanding competition-law issues might affect those matters.