Friday Law Report: Beer tie agreement ceased to be void

5 February 1999 Passmore v Morland plc and others Court of Appeal (Lord Justice Beldam, Lord Justice Potter and Lord Justice Chadwick) 2 February 1999

WHERE, AS a result of a change of circumstances, a prohibition on a beer tie agreement imposed by Article 85(1) of the EC Treaty no longer applied as between the parties to the agreement, the agreement between them ceased to be void under Article 85(2).

The Court of Appeal upheld the decision of Laddie J that a beer tie in a lease held by the plaintiff was enforceable.

The plaintiff was tenant of a public house under a lease granted by the second defendant, IPCL, which contained a tie requiring the lessee to purchase beer from IPCL and no other supplier.

On 29 July 1992 the reversion of the lease was transferred by IPCL to the first defendant, Morland. The plaintiff's solicitor wrote to Morland stating that the beer tie contained in the lease was void ab initio as a result of the provisions of Article 85 of the EC Treaty, and that it remained so irrespective of the identity of the owner of the freehold reversion, so that the tie was unenforceable by Morland.

Article 85(1) provided that all agreements between undertakings, decisions by associations of undertakings, and concerted practices which might affect trade between member states and which had as their object or effect the prevention, restriction or distortion of competition within the common market "shall be prohibited" as incompatible with the common market. Article 85(2) provided that agreements or decisions so prohibited "shall be automatically void".

The plaintiff commenced proceedings against the defendants claiming, inter alia, damages for breach of Article 85(1) and restitution of sums alleged to have been unlawfully charged by Morland. Morland issued a summons to strike out the plaintiff's claim on the ground that it disclosed no reasonable cause of action.

The judge held that as and when the obligations created by the lease between IPCL and the plaintiff gave rise to effects prohibited by Article 85(1) they became a nullity in the sense that they were absolutely unenforceable between the parties. The effect of the assignment between IPCL and Morland was to pass those obligations to the latter and since, in Morland's hands, they were inoffensive, they were enforceable. The plaintiff's claim was accordingly struck out. The plaintiff appealed.

Gerald Barling QC and Mark Brealey (Maitland Walker, Minehead) for the plaintiff; Nicholas Green QC and Aidan Robertson (Kimbell & Co, Milton Keynes) for the defendants.

Lord Justice Chadwick said that Article 85(1) of the EC Treaty only prohibited agreements and concerted practices which had a particular offensive economic objective or effect.

Each agreement or clause in an agreement had to be examined in the factual context in which it was to be operated in order to decide whether it was within the prohibition. It followed that an agreement which was not within Article 85(1) at the time when it was entered into might subsequently, and as a result of a change in circumstances, come within the prohibition. It must also follow that an agreement which was within the prohibition at the time when it was entered into might subsequently, and as a result of a change in circumstances, fall outside the prohibition.

Article 85(2) had to be construed in conjunction with Article 85(1), in particular in the light of an appreciation that the prohibition in Article 85(1) was temporaneous or transient rather than absolute, in the sense that it endured for a finite period of time rather than for all time. The nullity imposed by Article 85(2) was an exact reflection of the prohibition imposed by Article 85(1); accordingly, if the prohibition was temporaneous or transient, so was the nullity.

In the present case, as a result of the change in circumstances when the reversion in the tenancy passed to Morland, the prohibition no longer applied as between the parties to the agreement, and the agreement between them accordingly ceased to be void.

Kate O'Hanlon

Barrister