Enterprise Inns Plc v The Forest Hill Tavern Public House Ltd & Ors

A contractual price term will not be implied where it contradicts the agreement’s express pricing machinery. The question is whether, read as a whole against its relevant background, the contract would reasonably be understood to contain the proposed term. The familiar requirements of necessity, obviousness, reasonableness and consistency are different expressions of that central question, rather than separate tests.

A previous decision on similar tied-pub leases may be persuasive, but it is not conclusive for contracts made by different parties at different times. Evidence of market conditions at one period cannot automatically establish conditions at another. Where a lease incorporates a price list and requires purchases by reference to it, terms requiring prices to be reasonably competitive are inconsistent with the contract.

Enterprise Inns plc and Unique Pub Properties Ltd appealed against decisions of Master Moncaster concerning applications to strike out or summarily dismiss defences and counterclaims in two forfeiture claims concerning tied public houses.

The tenants alleged implied terms requiring tied beer prices to be reasonably competitive, requiring the combined rent and beer costs to be competitive with untied premises, and permitting them to buy out of the tie where supply prices did not accord with the alleged terms. The Master struck out the relevant allegations concerning The Ship but refused to do so concerning The Forest Hill Tavern.

The central issues were the persuasive effect of Courage v Crehan [1999] 2 EGLR 145, the proper approach to implying contractual terms, and whether the two leases contained pricing provisions inconsistent with the proposed implications.

1. Disposition. The landlord’s appeal concerning The Forest Hill Tavern was allowed. The tenant’s appeal concerning The Ship was dismissed.
2. Effect of Courage v Crehan [1999] 2 EGLR 145. That decision was not binding as a judgment between these parties. It was nevertheless persuasive on the interpretation of similar contractual language in the same trade and in similar circumstances, particularly where the parties could be taken to know of it. Its conclusions could not be treated as conclusive for contracts made at different times and in different circumstances.
3. Implied terms. The approach in A-G of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 did not undermine Crehan. The court asks whether the proposed term spells out what the contract, read as a whole against the relevant background, would reasonably be understood to mean. The formulations in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, including necessity, obviousness and consistency with express terms, are different ways of testing that central question.
4. The economic reasoning in Crehan depended on the market conditions prevailing in 1991–1992. The court could not assume that conditions in 2000 or 2006 were the same. The evidence before the court therefore could not establish the commercial assumptions relevant to the later leases.
5. The Ship. The 2000 Deed to Extend the Tie incorporated a price list and required the tenant to buy its beer from the landlord at the prices stated in it. That construction was reinforced by the supply provisions and by May & Butcher v King [1934] 2 KB 17 and Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1966] 2 QB 514. The proposed competitive-pricing terms contradicted the express machinery and had no real prospect of success.
6. The Forest Hill Tavern. The trading obligations, standard supply conditions and price list had to be read together. Properly construed, the price list identified both the products subject to the tie and the prices payable. The proposed implied terms therefore had no real prospect of success, and the relevant defence and counterclaim should be struck out.

High Court (Chancery Division): Master Moncaster struck out the relevant allegations concerning The Ship but refused to strike them out concerning The Forest Hill Tavern. The Chancellor dismissed the tenant’s appeal concerning The Ship and allowed the landlords’ appeal concerning The Forest Hill Tavern.