Punch Partnerships (PTL) Ltd & Anor v The Highwayman Hotel (Kidlington) Ltd

Under the statutory MRO regime, the minimum lease term required by regulation 30(2) is cumulative with the separate requirement that proposed terms be reasonable. Compliance with the minimum term does not establish reasonableness.

The Pubs Code permits relevant regulatory information to be considered in an MRO arbitration where fairness requires disclosure and an opportunity for submissions. However, an arbitrator may determine whether an offer is MRO-compliant and require a revised response, but lacks power to impose the specific terms that the revised offer must contain unless the legislation clearly confers that power.

The claimants, pub-owning businesses, challenged an award made by the Deputy Pubs Code Adjudicator in a statutory arbitration concerning a market rent only lease for the defendant’s tied pub. The award held that the proposed lease term was unreasonable and required the claimants to offer a new lease for at least five years.

The challenges were brought under sections 68 and 69 of the Arbitration Act 1996. The issues included whether the proposed term was unreasonable despite complying with regulation 30(2) of the Pubs Code, whether regulatory information had been improperly used, and whether the arbitrator had power to impose a particular lease term.

1. First and second challenges dismissed. Regulation 30(2) of the Pubs Code requires an MRO tenancy to last at least as long as the remaining tied-tenancy term. That requirement operates cumulatively with the requirements in section 43(4) and (5) of the Small Business, Enterprise and Employment Act 2015 and regulation 31 that the proposed terms must be reasonable. A term complying with regulation 30(2) may therefore still be unreasonable: paras [46]-[47].
2. The statutory scheme does not impose an absolute separation between the Pubs Code Adjudicator’s regulatory and arbitral functions. Relevant information obtained in the regulatory role may be disclosed and used in an arbitration where it is sufficiently significant to the dispute, provided fairness requires disclosure and both parties have an opportunity to make submissions: paras [64]-[76]. The landlord’s general policy on lease duration was a relevant possible factor in assessing objective reasonableness.
3. The question of burden was artificial. The arbitrator was entitled to conclude that, because the landlords had not explained their departure from their usual policy, there was no good reason for the shorter term and the offer was unreasonable: para [78].
4. Third challenge allowed. The reference was limited to whether the proposed tenancy was MRO-compliant. Regulation 33 required a revised response if the offer was non-compliant, but did not empower the arbitrator to determine the content of that revised response or order the insertion of a particular term. Clear language was required before the statutory scheme could authorise interference with contractual and property interests: paras [88]-[102].
5. The order requiring a minimum five-year lease was therefore an exercise of a power the arbitrator did not possess. It constituted a serious irregularity causing substantial injustice under section 68(2)(b) of the Arbitration Act 1996. The relevant distinction was between purporting to exercise a power that the tribunal did not have and erroneously exercising a power that it did have: paras [108]-[111].
6. The award was varied by setting aside paragraphs 61 and 62. Remission was unnecessary and inappropriate: paras [112]-[114].

First-instance decision. The judgment records that leave had been granted under section 69(3) of the Arbitration Act 1996 for the challenges to be heard, but does not state any earlier judicial determination on the merits.