Heineken Pub Company fined £2m after seriously breaching pubs code across the UK

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Pubs Code Adjudicator Fiona Dickie has today fined Star Pubs and Bars £2m after finding the company seriously and repeatedly breached the legally binding Pubs Code over nearly three years.

After completing her first investigation under the Pubs Code Dickie said the nature and seriousness of the breaches by Star (part of the Heineken Group) that she had uncovered merited a financial penalty. The fine would act as a deterrent to Star and other pub-owning businesses she regulates from future non-compliance.

Dickie said: “The report of my investigation is a game changer. It demonstrates that the regulator can and will act robustly to protect the rights that Parliament has given to tied tenants. I will be holding discussions with all the companies I regulate following my findings about how they will ensure they are Code compliant. My message is that if anyone previously had any doubts about my resolution to act when I find breaches, they can have no doubt now.”

Star – which operates the pub estate business of Heineken in the UK – had persisted in forcing its tenants to sell unreasonable levels of Heineken beers and ciders when they requested to go free of tie. This was despite repeated regulatory interventions and clear arbitration rulings from the PCA.

The PCA found the company had committed a total of 12 breaches with the result that it had frustrated the principles of the Pubs Code. As well as identifying how the company had offered stocking terms that had acted as a deterrent to tenants pursuing a free-of-tie tenancy, the PCA highlighted systemic corporate failures by Star in its approach to compliance.

Specifically, during the investigation she found that the company had included a responsibility in the job description of the company’s Code Compliance Officer ‘to ensure the Code is interpreted to the commercial benefit of Heineken UK’. This breached the Code requirement to appoint a compliance officer whose role is to verify compliance.

In the report of the investigation the PCA described Star as a repeat offender and said the company had been given opportunities to set itself on a compliant path ‘but intentionally or negligently failed to do so’.

The report said: “It failed to heed statutory advice, the PCA’s regulatory engagement and learnings from arbitration awards. It did not engage frankly and transparently with its tenants or meet the standards required of a regulated business when engaging with the PCA. Where it did change its approach, the efforts it made to comply were for the most part inadequate and not credible.”

Dickie’s investigation covered the period from 21 July 2016, when the Pubs Code came into effect, until 10 July 2019. She found multiple breaches by the company relating to stocking obligations. In particular, up to August 2018 96 tenants who requested a free-of-tie option were told that 100% of the keg beer they sold had to be Heineken brands.

This was contrary to the legal requirement that stocking terms should not prohibit a publican selling competitor brands. After several arbitration rulings by the PCA, the company switched to a tiered approach as to the amount of own brands to be stocked and specifying ‘must stock’ brands.

However, this “crude” policy was still not reasonable and compliant in many cases. Tenants who sold little or no Heineken products at the time that they asked to go free of tie faced having to stock 60% Heineken keg products within one year. This approach could have a particularly significant impact on some former Punch tenants whose pubs were purchased by Star in 2017. Star had no documentary evidence to show how the percentages in the tiered approach were decided.

All of this served as a barrier to tenants pursuing a free-of-tie option. Tenants told the PCA that Star’s proposed terms were inappropriate for the nature, size, location and trade of their pubs. They feared that they would lose their ability to react to local conditions and changing tastes during their tenancies; there was little demand for some products, including ‘must stocks’ and it would be a significant commercial risk for them to swap out currently popular products to make way for Heineken brands.

Dickie said: “This has been a thorough and detailed investigation and I have concluded that Star used unreasonable and non-compliant stocking obligations in its proposed free-of-tie tenancies over a significant period. Indeed, some of those obligations were not stocking requirements allowed under the Pubs Code.

“Despite meetings with me and findings I made in arbitrations, Star did not act in a timely, consistent or transparent way to correct what it was aware – or ought to have been aware – were instances of non-compliance. Supporting what Star’s evidence identified, tenants told me that they felt pressured by the company into settling on unfavourable terms or that they simply abandoned their free-of-tie right altogether.

“The evidence I reviewed led me to conclude that Star’s policies and patterns of conduct served as structural barriers to tenants going free of tie. Protracted negotiations over unreasonable stocking terms would present a deterrent to tied tenants from effectively exercising their right under the Pubs Code to go free of tie. The freedom to access these rights and for tenants to do the best for their business is now more important than ever given the uncertainty the pandemic has brought to the industry.

“I am also aware that some of Star’s free of tie tenants are already subject to terms that I do not consider compliant with the Code. This has resulted in unreasonable terms ending up in the market.

“The company must change its mindset and become proactive in its approach to compliance. I have decided this can best be achieved by the imposition of a sanction that will serve as a deterrent to future non-compliant conduct by Star and other pub-owning businesses.”

As well imposing the fine, which by law is based on the turnover of the whole of Heineken UK, the PCA has also ordered Star to make all its free-of-tie tenancies Pubs Code compliant and to ensure future Code compliance. Every free-of-tie tenancy agreed by Star must be audited and those tenants with non-compliant stocking requirements are to be assured that they will be made compliant or will not be enforced. All changes must be paid for by Star.

Dickie has given the company six weeks to provide a detailed response to how it will implement her recommendations and she has ordered it to write to all its tenants explaining her findings, the measures Star is taking to respond to them and how these will affect tenants in practical terms.

Forum of British Pubs welcomes Heineken Pub Company fine after serious breach of Pub Code

The Forum of British Pubs, welcomes the result of the year and half long investigation into the Code avoidance practices of Star Pubs and Bars, part of the Heineken group and fully supports their findings.

The Forum recognises this kind of bad behaviour from most of the regulated pub companies and Star Pubs and Bars are far from the worst offender at attempts to avoid the Code, their unreasonable demand for stocking requirements shows their desire to avoid the aim of the code to rebalance the market place and provide a fair and level playing field for pub tenants. The size of the fine and the criticism in the Pub Code Adjudicator’s (PCA) report sends a clear message to other regulated company’s that the PCA has finally bared its teeth and this kind of behaviour is not acceptable.

We support other tenant representative groups in condemning this sort of behaviour, which we have all reported to the PCA from the introduction of the code. The Forum have highlighted a systematic approach to avoiding parliament’s intentions for the Pubs Code and particularly welcome the point that Ms Dickie makes regarding the role of the Code compliance officer, which has become something of an embarrassment to those who have attempted to use CCOs to register bad business practices with the companies concerned.

We now call on Ms Dickie to focus her investigative powers on the use of dilapidations in the industry, which is both used to avoid the Code and most importantly, as an income stream contrary to existing legislation in the form of the Landlord and Tenant Act

Dave Mountford of The Forum of British pubs said: “Whilst the PCA has been frustratingly slow in responding to code avoidance issues and in launching any kind of investigation into bad business practices aimed at avoiding the code, we are obviously pleased that the PCA have finally acted on the undeniable activities of Star Pubs and Bars and we look forward to working with her particularly if she is willing to turn her attention to the other systematic unfair business practices perpetuated by the majority of the regulated pub owning businesses and in making sure that the pubs code finally starts to work in the way parliament intended when it was first introduced.”

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