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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Crehan v Inntrepreneur Pub Company (CPC) & Anor [2003] EWHC 1510 (Ch) (26 June 2003) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2003/1510.html Cite as: [2003] EWHC 1510 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		26 June 2003

TABLE OF CONTENTS

	Begins at paragraph
Abbreviations, glossary, dramatis personae, etc.	1
Overview	2
Article 81; the Delimitis case	5
The evidence	9
The various strands of facts involved in this case	14
Factual strand 1: The general structure of the United Kingdom beer and pubs businesses from the mid 1980s onwards	16
Factual strand 2: The formation of Inntrepreneur and the evolution of its business over the years	30
Factual strand 3: Mr Crehan and his involvement with The Cock Inn and The Phoenix	58
Factual strand 4: Inntrepreneur's contacts with the EC Commission	88
Factual strand 5: The stages through which Mr Crehan's case has progressed	120
The Commission's 1999 decisions in the cases of Whitbread, Bass, and Scottish & Newcastle.	133
Factors on which Mr Crehan cannot rely to establish liability under his present claim	137
Is Inntrepreneur's Delimitis argument an abuse of process?	145
Delimitis condition 1	148
Delimitis condition 2	199
The Block Exemption	206
Other suggested Community law defences to Mr Crehan's claim	223
Shared responsibility?	224
'Mr Crehan was not an aspiring entrant to the market for the supply of beer to on-trade outlets'	226
'Mr Crehan would not have purchased from suppliers in other Member States even if he had been free of tie'	228
Did the beer ties cause Mr Crehan's failure at The Cock Inn and The Phoenix?	230
Quantum	265
Were Mr Crehan and Mr Carroll in partnership?	292
Conclusion	297
Abbreviations, glossary, dramatis personae, etc	Annex at end

 

Mr Justice Park:

 

1. Abbreviations, glossary, dramatis personae etc.

These are contained in the Table in the Annex at the end of this judgment. I suggest that a reader who is unfamiliar with the detailed facts of the case should detach the Annex or make a copy of it, so that he or she can have it separately to hand while reading through the main body of the text.

Overview

2. Mr Crehan is a publican. In July 1991, pursuant to agreements for leases, he took occupation of two pubs which Inntrepreneur owned: The Cock Inn and The Phoenix; they are situated close to each other in Staines, a town on the Thames a little to the west of London. The leases annexed to the agreements contained beer ties whereby Mr Crehan was bound to purchase most of his beer from Courage at the full prices in Courage's price lists from time to time. Tenants or owners of free houses (as opposed to tied houses like The Cock Inn and The Phoenix) were able to purchase their supplies of beer, whether from Courage or from other suppliers, at prices which were discounted heavily below the listed prices which Mr Crehan was obliged to pay. Mr Crehan's business failed and he became involved in protracted litigation with Courage and with Inntrepreneur. The case finally came to trial and was heard before me over a total of 29 days. It involves substantial issues of EC law revolving around whether the beer ties in Inntrepreneur leases infringed article 81 of the EC Treaty. It has already been to the CJEC. The effect of the CJEC's decision, announced in September 2001 and reported at (among other places) [2002] QB 507, was that Mr Crehan might have a claim for damages against Inntrepreneur, but that there were substantial questions which needed to be decided by the national court.
3. The hearing before me took place in order to decide those questions. The case is very complicated, and it would be impossible to encapsulate all of the issues in a brief overview at the beginning of this judgment. However, in my view the two questions of overriding importance are as follows: (1) In 1991 (when Mr Crehan took his leases from Inntrepreneur) and in subsequent years was the structure of the beer distribution industry in this country such that the beer ties in Inntrepreneur leases infringed article 81? (2) If it was, was the failure of Mr Crehan's business caused by the beer ties in his two leases, or was it caused by other factors altogether? For Mr Crehan to succeed, the answers to the first question has to be yes (i.e. the beer ties in Inntrepreneur leases did infringe article 81), and the answer to the second question has to be that the failure of his business was caused by the beer ties, rather than by something else. In my judgment the answer to the second question is in favour of Mr Crehan (i.e. it was the beer ties, and not other factors, which caused the failure of his business), but the answer to the first question is adverse to Mr Crehan (i.e. the beer ties in the Inntrepreneur leases did not infringe article 81). It follows that Mr Crehan's claim for damages fails. What I say now will be no consolation to him, but he does not fail on any ground for which he could be said to have been personally responsible. He fails because of complex and difficult issues of EC law at a high level, and nothing that he did or failed to do in relation to The Cock Inn and The Phoenix influences those issues at all.
4. I should record that Mr Crehan was represented by Mr David Vaughan QC, Mr Mark Brealey QC, and Mr Mark Wonnacott. Mr Wonnacott was particularly concerned with the property aspects of the case. In the event they receded in importance as the case progressed, and a stage came when Mr Vaughan and Mr Brealey were responsible for the contentious parts of Mr Crehan's case. Inntrepreneur was represented by Mr Kim Lewison QC, Mr Nicholas Green QC, Mr James Flynn and Mr Martin Rodger. Since the hearing Mr Lewison has become Mr Justice Lewison and Mr Flynn has become Mr James Flynn QC.

Article 81; the Delimitis case

5. Article 81 is the first of the articles of the Treaty which deal with competition. The relevant parts of it read as follows.

Article 81

(1) The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings, and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which … [five subaragraphs (a) to (e) follow which I will not reproduce here].

(2) Any agreements or decisions prohibited by this Article shall be automatically void.

(3) The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

any agreement or category of agreements between undertakings

[irrelevant in this case]

[also irrelevant in this case]

which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives;

afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

6. I will have to explain later how the article applies (or fails to apply) in the particular circumstances of this case, but at this point it is worth pointing out two features of it. First, the words of paragraphs (1) and (2) which are critically in point in the present case combine as follows: 'all agreements between undertakings … which may affect trade between Member States and which have as their … effect the prevention, restriction or distortion of competition within the common market … shall be automatically void.'
7. Second, paragraph (3) creates a power, vested in the Commission in the first instance, under which a particular agreement or category of agreements which would otherwise be invalidated by paragraphs (1) and (2) may be exempted from invalidation. There are two ways in which the power can be exercised. One is by the introduction of a 'block exemption', analogous to delegated legislation, whereby agreements which precisely comply with the terms of the block exemption are valid notwithstanding paragraphs (1) and (2). There was a block exemption capable of applying to beer ties, and whether it applied in this case is one of the issues which I have to decide. My decision is going to be that it did not. The other way in which the exempting power can be exercised is through the grant by the Commission of an individual exemption in a particular case. Part of the history of this case concerns unsuccessful attempts by Inntrepreneur and Courage to persuade the Commission to grant an individual exemption.
8. The leading case about article 81 and beer ties is the CJEC decision in Delimitis v Henninger Bräu AG, Case C-234/89, [1991] ECR I-935. Hereafter in this judgment I shall refer to the case simply as Delimitis. I shall have to examine a number of detailed aspects of it later, but it indicates that a beer tie in a lease of a pub may or may not be in contravention of article 81. Two critical questions have to be asked. First, having regard to the economic and legal context of the lease in question, is it difficult for competitors who could enter the market or increase their market shares to gain access to the national market for the distribution of beer in premises (like pubs but including some other kinds of on-licensed premises as well) for the sale and consumption of drinks? If it is not, the beer tie will not infringe article 81. If it is, the second question arises. That question (paraphrasing somewhat the words of the CJEC itself) is: where the difficulty in entering the market results from parallel networks of similar agreements (as will almost always be the case – or argued to be the case – in connection with beer ties), does the particular network to which the impugned lease belongs make a significant contribution to the sealing-off effect brought about by the totality of the agreements in their economic and legal context? If it does the tie will infringe article 81. If it does not the tie will not infringe article 81. I will refer to the two conditions which must exist before the article will invalidate a beer tie as Delimitis condition 1 and Delimitis condition 2.

The evidence

9. I shall have to refer to many aspects of the evidence in some detail as this judgment progresses, but it might be useful for me to give a general indication of the nature of it at the outset. As one would expect, the evidence was documentary and oral; and the oral evidence was partly from witnesses of fact and partly from experts.
10. The documents came in many forms covering many different areas. However, most of them fell into three principal categories: (1) documents relating to The Cock Inn and The Phoenix, and in particular to Mr Crehan's leases of them and his activities in connection with them; (2) documents involving the Commission, especially documents concerning the protracted exchanges between Inntrepreneur and the Commission over whether the Inntrepreneur leases were or were not in breach of article 81, and over whether they could be exempted from the article; (3) reports and other documents arising from the many investigations into aspects of the brewing and beer distribution industries which have been undertaken in this country over the last fifteen years or so.
11. There were 19 witnesses of fact called on behalf of Mr Crehan. He gave evidence himself, as did his wife and her brother, Mr Carroll. Mr Neal, the accountant who acted for him during the fairly short period when he was the lessee of the two pubs, gave evidence. There was evidence from several locals from the Staines area who were regular users of pubs. The purpose of their evidence was to show that the businesses at The Cock Inn and The Phoenix were seriously harmed by the low prices which competing pubs were able to charge and which Mr Crehan believed, rightly or wrongly, he could not afford to match. Several other witnesses were publicans who had been Inntrepreneur lessees of other pubs. Their evidence was intended to show that they had struggled to survive, not always successfully, while they were tied by their leases to buy their supplies from Courage at full list prices, but that when they (or those of them who survived) went free of tie (as many Inntrepreneur lessees eventually did), everything changed and struggling businesses became successful almost overnight. It seemed to me that after cross-examination the position had not been nearly so dramatic as the witness statements would have suggested, but I do accept that a lot of Inntrepreneur lessees found it hard to make a success of their businesses. Mr Crehan also adduced evidence from two former employees of Inntrepreneur, whose earlier backgrounds had been in the brewing industry rather than in the property business. The thrust of their evidence was that they thought that the terms of business which Inntrepreneur required its lessees to accept were too severe, and that many lessees did not have a fair chance of making a success of their pubs.
12. Inntrepreneur called 14 witnesses of fact. There was evidence from several past or present Inntrepreneur officers or employees, including the two persons who had been effectively the chief executives through most of the 1990s. The first was Mr Robert Williams and the second was Mr Michael Foster. Mr Foster was particularly interesting, because from 1989 to 1995 he was managing director of Courage and in 1995 he moved from Courage to become chief executive of Inntrepreneur, where he remained until 1999. So he experienced from two different viewpoints the activities of Inntrepreneur and of Courage, and the ways in which those activities impacted on the Inntrepreneur lessees. I think that a lot of Inntrepreneur lessees have been of the opinion that Inntrepreneur and Courage were somehow in league with each other to grind down the lessees. One of the things which I learned from Mr Williams and Mr Foster was that it was not like that at all, and that there was regular tension between the two companies. An important witness for Inntrepreneur was Mr Richard Fleck, a partner in the firm of solicitors (Herbert Smith) who acted for Inntrepreneur throughout its discussions and exchanges with the Commission. Inntrepreneur also called evidence from representatives of other brewing concerns designed to show that, as far as their breweries' experiences went, it was not the case that it was difficult to enter the United Kingdom beer distribution market; or, if the brewery had already entered the market, it was not difficult to expand its business within it. One of these witnesses was Mr Dinesen, who had been the chief executive in the United Kingdom of the Danish brewing group, Carlsberg. Inntrepreneur also called evidence from two directors of companies which operated pubs in Staines which were close local competitors of The Cock Inn and The Phoenix. There were also some witnesses who dealt with the condition of the premises at The Cock Inn and The Phoenix when Mr Crehan left; but as the case proceeded those issues effectively fell away.
13. Turning to expert evidence, I received reports and heard evidence from no fewer than eight experts. Each side adduced evidence from expert valuers, expert accountants and expert economists. The valuers were Mr Day FRICS for Mr Crehan and Mr Butters FRICS for Inntrepreneur. The accountants were Mr Main FACCA for Mr Crehan and Mr Haberman FCA for Inntrepreneur. The economists were Dr Veljanovski for Mr Crehan and Professor Yarrow for Inntrepreneur. Professor Yarrow spoke to an expert report which had been prepared by himself and two other economists from an organisation known as NERA (National Economic Research Associates). The foregoing experts made six experts so far. In addition Inntrepreneur presented evidence from two other experts, Mr Spicer and Mr Willis FRICS. Mr Spicer is an investment analyst who has specialised in the brewing industry. Mr Willis is a surveyor whose firm has a particular specialisation in licensed premises. He gave general evidence about the brewing and licensed premises businesses in this country over the years from the late 1980s to the present day. The combined evidence of Mr Spicer and Mr Willis provided an interesting and illuminating account of many aspects of the beer business (distributing and marketing it as well as brewing it) over the years with which I am concerned.

The various strands of facts involved in this case

14. In a judgment a judge always likes to be able to give a reasonably concise and chronological account of the facts. However, I am not going to attempt a chronological approach, because the case arises against several backgrounds of different levels of generality, ranging from high principles of EC competition policy to the beer drinking habits of pub-goers in Staines in the early 1990s. For me to give a single chronological account, switching backwards and forwards between strands, would be hopelessly confusing. Instead I will attempt to distil out the facts in five strands, as follows.

Factual strand 1: The general structure of the United Kingdom beer and pubs business from the mid-1980s onwards.

Factual strand 2: The formation of Inntrepreneur and the evolution of its business over the years.

Factual strand 3: Mr Crehan and his involvement with The Cock Inn and The Phoenix.

Factual strand 4: Inntrepreneur's contacts with the EC Commission.

Factual strand 5: The stages through which Mr Crehan's case has progressed.

15. In the immediately following parts of this judgment I will try to give sufficient of the facts to enable a reader to follow the subsequent parts of the judgment where I turn to the numerous disputed issues. However, there are many detailed nuances of the facts upon which I will have to expand from time to time as the judgment progresses.

Factual strand 1: The general structure of the United Kingdom beer and pubs businesses from the mid-1980s onwards.

16. In the mid-1980s there were many companies in the United Kingdom which brewed beer, but five large companies or groups, sometimes called national breweries, had between them a large share of the national market: Bass, Allied-Lyons, Grand-Metropolitan, Courage, and Whitbread. Some observers of the market would have regarded Scottish & Newcastle as a sixth national brewery.
17. As I have just said, one of the large national breweries was Courage. In 1985 the Courage group was acquired by the Australian group Elders. The Elders group owned the well-known Australian lager brand, Fosters. Indeed I believe that in time the Australian owner of Courage came to be called Fosters Brewing Group, not Elders. I do not know whether this reflected a change of owner within a wider group or only a change of name of the continuing owner. At all events Courage started to brew Fosters, so that Courage's principal products were, so far as ale was concerned, the established Courage bitters (Directors and Best) and, so far as lager was concerned, Fosters. Courage also had licence agreements under which it brewed some other established lager brands.
18. An important feature of the businesses of the large brewing groups was that they owned a great many pubs. Some of their pubs were managed houses: that is to say the publican who held the licence and who ran the pub was an employee of the brewery, so that it was the brewery which sold the beer across the bar to customers. Others of their pubs were tenanted: the brewery let the pubs to publicans, so that it was the publican-tenants who sold the beer across the bar. The tenancy agreements almost invariably contained beer ties which obliged the tenants to buy all or most of their beer from the brewery which owned the pub. Both managed houses and tenanted houses were examples of 'vertical integration': the producer of the commodity – the beer – also owned or controlled many of the outlets through which it was sold to members of the public.
19. Tenancy agreements of pubs at this time were different in several respects from tenancy agreements or leases of other types of commercial premises like shops or offices. Pub tenancies were for quite short terms, such as three or five years, but the general pattern was that they were renewed as the current terms expired. They were not assignable by the tenants, and in general the tenants were severely restricted in what they could do by way of repair, refurbishment and improvement of the pubs.
20. For brewers to own managed houses and operate them themselves, and also to own tenanted houses with beer ties in the tenancy agreements, were two ways in which the brewers had a substantial degree of control over the retail outlets for the beer which they produced. Another common arrangement which led to a similar result was a loan tie. A brewery would make a loan to the proprietor of a free house or to a club, and a term of the loan agreement would tie the borrower to purchase some proportion of his or its beer supplies from the brewery.
21. A feature of the industry in the 1980s – of a different nature, but one which should be mentioned – is that the proportion of beer sales accounted for by lager (as opposed to ale – a peculiarly British product) was steadily increasing. Some lagers were imported, but it is quite expensive and cumbersome to import a bulky and heavy product like beer, so many United Kingdom breweries installed lager production facilities. With the exception of Tennents lager, attempts to establish and launch home-grown lagers have been unsuccessful. The best known example of this is Harp, a lager introduced by a syndicate headed by Guinness and marketed for a number of years. I am not sure exactly when Harp went out of production, but I think that it is no longer produced. By the mid-1980s many United Kingdom breweries were brewing well-known international brands of lager, usually under licence from foreign proprietors of the brand. However, there were other patterns. One example is that Bass purchased the United Kingdom rights to the Carling brand, which in time became the largest selling beer in the country. Another is that the Danish group Carlsberg had built its own brewery at Northampton in the early 1970s. I shall have more to say about Carlsberg from time to time in later parts of this judgment.
22. In August 1986 the Monopolies and Mergers Commission (the MMC) was instructed by the Director General of Fair Trading to investigate and report upon 'the existence or the possible existence of a monopoly situation in relation to the supply of beer within the United Kingdom for retail sale on licensed premises.' The MMC produced its formidable report in February 1989. One of its findings was that 'a complex monopoly situation exists in favour of the brewers with tied estates and loan ties.' It made detailed recommendations, relating in particular to ties in tenancies of pubs and to loan ties. The Government did not implement the recommendations in every detail, but it did make changes which have had a fundamental impact on the structure of the industry.
23. The changes came predominantly in the form of two statutory instruments made in December 1989. They are generally referred to as the Beer Orders. Their formal titles are the Supply of Beer (Tied Estate) Order 1989 and the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989. As the annexed Table states, I will refer to them as the TEO and the LTO. They were made by the Secretary of State for Trade and Industry under powers conferred by the Fair Trading Act 1973.
24. The TEO did not have significant effects on smaller breweries, that is breweries (or brewery groups) which owned fewer than 2,000 licensed premises, but it had major effects on the large national breweries (or brewery groups). The most important effect was that the large breweries were required substantially to reduce the number of outlets comprised in their managed and tied estates. They had to do this by 1 November 1992, which left quite a short lead-in time before the breweries had to comply. The MMC had recommended a simple limit of 2,000 for each national brewer, but the TEO softened this by making the limit 2,000 plus one half of the excess over 2,000 of the total outlets (principally pubs) owned by each large brewery group since July 1989. This meant that not later than 31 October 1992 the large brewers either had to sell a significant number of pubs, or release a significant number from tie, or implement a combination of the two. The evidence was that the TEO, coupled with the Undertakings (which applied to Inntrepreneur, and which I will describe later: see paragraph 36 below) , meant that something like 11,000 pubs were going to go free of tie or be sold before November 1992.
25. Another important effect of the TEO (for the large breweries to which it applied) was to restrict to some extent the permitted scope of beer ties in pub leases. All tied tenants had to be permitted to purchase one cask-conditioned ale from a supplier of their own choice, untrammelled by any tying provision in their leases. They were also to be permitted to purchase non-alcohol or low alcohol beers and ciders free of tie. So far as a cask-conditioned ale was concerned this provision of the TEO has customarily been referred to as the 'guest ale' provision. I will say more about it later, but there are two points which I can conveniently make now. First, it did not apply to lagers, which (as I have explained) were becoming the largest selling beers in pubs: tied tenants had to buy their supplies of lagers within the tie. Second, despite the implications of the word 'guest', a tied tenant could purchase his guest ale from the tying landlord (or, as matters developed in the case of Inntrepreneur, from Inntrepreneur's nominated supplier under the beer tie in its pub leases, Courage). An important point was that, on a tenant's purchases of his guest ale, he was not required to pay for it at the brewery's list prices: he could negotiate for and obtain the sort of substantial discounts below list prices which tenants or owners of free houses habitually obtained on all of their beer supplies. This applied whether he chose to buy his guest ale from a brewer other than his landlord, or from the landlord (including, in the case of an Inntrepreneur tenant like Mr Crehan, from Inntrepreneur's nominated supplier, Courage). Mr Crehan chose to buy his guest ale from Courage.
26. Moving from the TEO to the LTO, whereas the main provision of the TEO (the requirement substantially to reduce the number of tied houses in the estates of the larger breweries) was not to take effect until November 1992, the LTO took effect almost immediately. It did not prohibit loan ties absolutely (which is what the MMC had recommended), but it provided that all agreements for loans by breweries or members of brewery groups which prohibited the borrower from purchasing beer from third parties had to be terminable by the borrower on not more than three months' notice. So brewery loans with ties were still permissible, but the borrowers could always pay them off at short notice and thereby be freed from the ties. The LTO applied to all breweries or brewery groups, not just to the larger ones with estates of over 2,000 licensed premises.
27. The consequences of the Beer Orders are of great importance in this case, particularly given that Mr Crehan took the leases of The Cock Inn and The Phoenix about eighteen months after the Orders were made. In the words of Mr Spicer, an expert witness on the financial structure of the beer industry: 'The years in which Mr Crehan operated his public houses, 1991 to 1993, were ones of considerable change and turmoil within the UK brewing industry.' Mr Spicer did not attribute the change and turmoil exclusively to the Beer Orders, but it is clear from his report that the Orders had a lot to do with it. In the words of Mr Willis, the expert chartered surveyor with intimate personal knowledge of the industry, the Beer Orders resulted in 'fundamental changes to the industry'. From time to time as this judgment progresses I will refer to various effects of the Orders (and also to some extent to effects of other influences on the industry at the same period), but it may be helpful to highlight some salient points here.

An unprecedented number of pubs were available for purchase, as the larger brewers reduced their tied and managed estates in order to comply with the ceilings set by the TEO.

Regional and local brewers (brewers which were substantial in size but not large enough to be within the TEO) expanded by purchasing many of the pubs which came on the market.

A new type of company emerged, generically referred to as a Pubco. A Pubco owns a substantial number of pubs but does not have any brewing activities, and is not a member of a brewing group. Some Pubcos manage some or all of the pubs which they own, so they trade as substantial retailers of beer in their own pubs. Others own the pubs but lease them to tenants, usually by leases which have ties in them requiring the publican lessees to buy a large part of their beer supplies from the Pubco or another vendor nominated by the Pubco. Before the Beer Orders Pubcos hardly existed at all. By now they own between them a substantial proportion of pubs. One expert report estimated that in 1998 they owned something like 15% of the pubs in the country. Given the size of the United Kingdom market, that is a lot of pubs. Some Pubcos are large enterprises, taken entirely by themselves. Mr Willis records that by the year 2000 Punch Taverns and Enterprise Inns each owned several thousand outlets, and that Pubmaster owned over 2,000. He gives details of other Pubcos which have estates approaching the same size. There is no doubt that Pubcos, both individually and collectively, possess considerable economic power and are in no sense dominated by the might of the large breweries.

Beer supply agreements have become important. These are agreements between breweries and owners of pubs, including Pubcos. They provide for a brewery to supply to the other party some part of its beer requirements for a period which varies from agreement to agreement. I shall have more to say about beer supply agreements at later stages in this judgment.

Several breweries have been closed. This may not have been a result of the Beer Orders, but rather of other forces which were active in the 1990s, including the prolonged and deep recession in the early years of the decade.

There has been much activity in acquisitions, mergers, and takeovers. It would be beyond the scope of this judgment to give any sort of detailed account of all of the changes, but the overall picture of the brewing industry in this country now is quite different from how it appeared in the 1980s. The largest brewing group in the country now is Scottish & Newcastle (sixth in size at the time of the MMC report), which has acquired several previously separate brewing operations. One of them was the Courage brewing business. The next three largest brewing groups are owned by Interbrew (a Belgian group), Coors (a United States group), and Carlsberg (a Danish group).

The old structure whereby the breweries, particularly the larger breweries, owned a large proportion of the pubs around the country has changed significantly. It has not disappeared entirely. I think I am right that Scottish & Newcastle still owns a tied and managed estate of pubs, and so do many regional and local breweries. But Interbrew and Coors do not own their own estates of pubs, or at least do not own large estates of pubs: they supply beers brewed by them (or by companies in their groups) to Pubcos, free houses and others.

28. As well as developments in the brewing and pubs businesses in this country which can be seen to have been related to the Beer Orders, there were other developments which should be noted. Total consumption of beer, at least in on-licence outlets, declined, but lager continued to flourish and to expand its share of the market. Mr Spicer gives the following striking percentages for lager's share of total beer sales in the United Kingdom: 1960, 1%; 1970, 7%; 1980, 31%; 1990, 51%; 2000, 64%. The percentage of beer sales through off-licences increased: 1979, 12%; 1991, 21%; 1993, 23.2%.
29. It is also relevant to keep in mind that the early 1990s exhibited a deep and prolonged recession, which lasted for most of 1991 and 1992, and only started to abate in 1993. It was a period when 'negative equity' became a familiar expression. In businesses generally, not restricted to brewing and pubs, there were many failures. For consumers, money for recreational spending was not as readily available as it had been in more normal times.

Factual strand 2: The formation of Inntrepreneur and the evolution of its business over the years

30. The Inntrepreneur group of companies was established in 1991, but the genesis of its business traces back to innovations within the Grand Met group a few years earlier. In the mid and late 1980s the Grand Met group owned a number of brewing interests, several of which were famous names in the industry: for example Watneys, Trumans, Ushers, The Norwich Brewery, Manns, Wilsons, Websters. The various Grand Met breweries owned estates of managed and tied houses. The tied houses were let to tenants on the sorts of tenancies which were traditional in the industry, and which I have briefly described in paragraphs 18 and 19 above. In 1986 Mr Robert Williams (who was a witness for Inntrepreneur in the case) became the Chief Executive of Grand Metropolitan Estates Ltd (GME), the group company to which the equitable ownership of the tied and managed houses of the group had been transferred. He came originally from a property background rather than from a brewing background. He explains in his witness statement that from the time when he joined the licensed trade in 1981 he believed that there had to be a better way for the industry to manage its property assets and that it must be possible to create an institutional market for investment in public houses.
31. Mr Williams was instrumental in devising a new form of lease of a pub, a form which came to be described as an 'Inntrepreneur lease'. Instead of being for a quite short term, with a de facto expectation of renewal from time to time, an Inntrepreneur lease was for twenty years. There were rent reviews at five yearly intervals. The tenant was responsible for repairs – a financial burden in one sense, but an advantage in another in that the tenant had much greater freedom to do things affecting the state and appearance of his pub. The leases were in principle assignable, whereas the traditional types of pub tenancies were not. The rents would be higher than under the old types of tenancies. The theory was that the higher rents reflected the advantages which Inntrepreneur leases possessed. One characteristic of the old-style pub tenancies which carried over into the new Inntrepreneur leases was that they contained beer ties, requiring the publican lessee to buy his supplies of beer from the lessor or such other supplier as the lessor might nominate. Although, as I have just said, rents for Inntrepreneur leases would be higher than for the old style of tenancies, it was to be expected that rents for tied Inntrepreneur leases would still be lower than rents for free of tie premises leased on otherwise comparable terms. I have already mentioned that free house publicans could obtain discounts on their purchases of beers, whereas tied lessee publicans (like tied Inntrepreneur lessees) could not. This disadvantage of tied leases by comparison with free of tie leases ought in principle to have been reflected to some extent in tied leases commanding lower rents.
32. The beer ties are of course central to the issues in this case, and at a later point I will say more about the detailed contents of the ties in the leases of The Cock Inn and The Phoenix. See paragraph 73 below.
33. The concept of the Inntrepreneur lease attracted a lot of interest, and many publicans were keen to acquire them. The first Inntrepreneur leases were granted by GME in 1986. I am not sure whether at that time there was a separate company which incorporated 'Inntrepreneur' in its name, or whether 'Inntrepreneur' was simply a name which GME used for its new style leases.
34. The creation of the present Inntrepreneur companies derived from something which has been referred to as the 'pubs for breweries swap'. This was a major business deal between the Grand Met group and Courage (which was by then owned by the Australian group Elders/Fosters). Negotiations about it started in 1988 or 1989, and I believe that it was formally implemented on 28 March 1991. Some time was occupied in securing approvals from the Commission and from the OFT. These approvals were obtained, but a condition of approval from the OFT was that Inntrepreneur's shareholders gave important undertakings (generally referred to as the Undertakings, with a capital U) to the United Kingdom government. I shall say more about the Undertakings later (see paragraph 36 below). The general shape of the pubs for breweries swap was as follows.

The Grand Met group transferred its breweries and brewing interests to Courage. This included not just the physical breweries, but also the rights to brand names, licences to brew foreign brands, etc.

Thus Grand Met withdrew from brewing.

Grand Met and Courage created a 50/50 owned sub-group of companies, called Inntrepreneur, to own the tied estates formerly owned by GME and by Courage. If I have understood correctly, the Inntrepreneur sub-group consisted of a holding company and three operating subsidiaries. The holding company was owned in 50/50 proportions by Grand Met and Courage (which was itself ultimately owned by Elders/Fosters of Australia). The three subsidiaries were wholly owned by the holding company. I may not have it exactly right, but I assume that the concept was for the holding company to own the shares in the subsidiaries, and for the subsidiaries to own the pubs. I add that companies in the Inntrepreneur group have changed their names on some occasions, which makes it hard to follow exactly which company is which as time passes. Fortunately nothing turns on it in the present case, and I can and will use the single word Inntrepreneur to apply collectively to all companies in the Inntrepreneur sub-group. The Inntrepreneur company which is the first defendant to Mr Crehan's claim is now called Inntrepreneur Pubco (CPC). I infer that the letters CPC derive from an earlier time in its history when it was called Courage Pub Company Ltd.

The pubs in the tied estates of GME and of Courage were transferred to Inntrepreneur. Some pubs in the managed estates were also transferred, but for the most part those pubs were transferred with a view to their ceasing to be managed houses and becoming leased pubs in the future. The basic idea was that Inntrepreneur was to be a freehold lessor of pubs let to tenants on Inntrepreneur leases; it was not to be an operator of managed pubs. If I have understood correctly both the Grand Met group and Courage retained managed estates in their own ownerships. All or many of the pubs in the Grand Met managed estate traded under the name Chef and Brewer.

There was a management agreement between Inntrepreneur and GME for GME to manage the estate of pubs owned by Inntrepreneur. Inntrepreneur had a board of directors, which was composed of Grand Met and Courage persons in equal proportions, but the running of Inntrepreneur's business was undertaken by GME under the management agreement. I have mentioned earlier that Mr Williams was the Chairman and Managing Director of GME. As such he was effectively the chief executive of Inntrepreneur.

The objective was that Inntrepreneur should negotiate with a view to letting all the pubs owned by it on Inntrepreneur leases. By and large this was achieved.

The leases all contained beer ties. They required the lessees to purchase their supplies of beer (except for one cask-conditioned guest ale, non-alcohol beers and low-alcohol beers) from a supplier to be nominated by Inntrepreneur, paying the full list prices of the nominated supplier. I go into more detail about the contents of the beer tie provisions in the leases of The Cock Inn and The Phoenix in paragraph 73 below.

Inntrepreneur nominated Courage as the supplier. There was a 'Beer Procurement Agreement' which provided for this. Courage was to make available 'a wide range of high quality beer in line with consumer demand … and in a competitive manner'. Its prices were to be generally competitive with the prices charged for similar beer to tied tenants of brewers other than Courage. The Beer Procurement Agreement also provided for Courage to make payments, in the nature of commissions, to Inntrepreneur calculated by reference to the prices received by Courage upon tied sales of beers to Inntrepreneur tenants.

Although it was not strictly part of the pubs for breweries swap, but rather something which was a permanent feature of the subsequent operation of the structure, it is convenient to mention here an aspect of how the beer ties in Inntrepreneur leases operated. This was the Courage price list. Courage had price lists in force from time to time (and different lists for different parts of the country) in which it listed the various beer and other products which it offered for sale to Inntrepreneur lessees, and from which the lessees had to buy their beer supplies (except for the guest ale, non-alcohol beers and low alcohol beers). It is worth noting that the Courage price lists were extensive. Naturally they contained all the range of ales and lagers, draught or bottled, brewed by Courage or associated companies, but they also contained a significant number of beers brewed by other suppliers. For those beers Courage acted in effect as a wholesaler. They included Guinness, and also a range of ales or lagers produced by smaller breweries. I do not think that the Courage price lists included beers produced by the other national breweries (e.g. Bass, Allied Lyons or Whitbread), but they did include various beers which were produced by regional breweries and which had attracted high reputations.

35. I will describe the history of operation of the beer ties in Inntrepreneur leases from the inception of the company until the present time. Then I will go back in time again to Inntrepreneur's early period and discuss some other aspects of the company's existence and activities.
36. It will be recalled that the TEO required the large breweries substantially to reduce by 1 November 1992 the number of tied and managed pubs which they owned. Inntrepreneur became the owner of the tied estates of two large brewery groups, Grand Met and Courage. Nevertheless the TEO did not apply to Inntrepreneur, because Inntrepreneur was not itself a brewing company or a member of a brewing group: it was a property company, and although one of its 50% shareholders (Elders/Fosters) had substantial brewing interests including in particular Courage, Grand Met, the other 50% owner, was withdrawing from brewing pursuant to the pubs for breweries swap. However, as a condition of the OFT consenting to the pubs for breweries swap, Inntrepreneur's shareholders were required to give 'the Undertakings' to the Secretary of State for Trade and Industry. The Undertakings imposed on Inntrepreneur (through its shareholders) similar obligations to those which the TEO would have imposed. Indeed in some respects the Undertakings imposed more onerous obligations. The Undertakings restricted to 4,350 the number of Inntrepreneur pubs which could be let on tied leases after 31 October 1992. (In March 1991, after completion of the pubs for breweries swap, Inntrepreneur owned about 8,450 pubs.) Thus until 31 October 1992 Inntrepreneur was in the same position as the other large breweries: it was going to have to dispose of some pubs, or release some pubs from tie, or a combination of the two. In fact it did sell quite a lot of pubs, and on 31 October 1992 it also released from tie 2,098 pubs. (The Phoenix, one of Mr Crehan's pubs, was one of them.) It still owned those 2,098 pubs, which were now free of tie, and in addition it still owned 4,331 pubs which continued to be tied. Looking further into the future, the Undertakings went further than the TEO, because they required Inntrepreneur on 28 March 1998 to release all of its pubs from tie. There was nothing similar in the TEO, although the Government had announced that after a few years it would review the Beer Orders, and (at least according to the impression which I have formed) many observers expected that the review would result in the Orders being extended so at to prevent the large brewers having any tied pubs from 1998 onwards. In the event, as I will describe, that did not happen.
37. In the foregoing circumstances Inntrepreneur's position was that until 31 October 1992 all of its pubs could be let on tied leases; after that date a maximum of 4,350 of its pubs could carry on being let under tied leases until 28 March 1998. In the mid 1990s it appeared that by 28 March 1998 none of Inntrepreneur's pubs could continue to be let on tied leases, so that Inntrepreneur would either have to sell pubs or release the lessees from the ties. However, the matter did not turn out that way in the event.
38. The Undertakings, unlike the TEO, were not part of the general law which conferred rights on lessees of pubs. Their contents were generally known, but as a matter of law they operated solely between the Secretary of State and the companies which controlled Inntrepreneur. Notwithstanding the existence of the Undertakings Inntrepreneur (entirely legitimately) continued to include in its leases beer ties which required the publican lessees to buy all their supplies of beer (except one guest cask-conditioned ale, non-alcohol beers, and low alcohol beers) from Inntrepreneur's nominated supplier, which in practice was Courage. The beer tie provisions in the leases were not expressed to expire on 31 October 1992 or 28 March 1998, but rather continued through the full 20 years terms of the leases. Inntrepreneur and its shareholders anticipated that they would comply with the Undertakings by selling pubs or releasing pubs from the ties during the continuance of the current leases. That is exactly what Inntrepreneur did before 1 November 1992 in relation to a lot of its pubs, and the expectation was that it would do it again before 29 March 1998 in relation to the tied pubs which it still owned. The leases contained provisions for the lessees to be released from the beer tie, in which event Inntrepreneur had the option to require an immediate rent review. The theory behind this was that market rents for a tied house were lower than for a free house, so if Inntrepreneur released a pub from tie it would be likely to want to have the rent increased.
39. However, before 28 March 1998 (when the Undertakings required all Inntrepreneur pubs to be released from tie) there was a change. The Government had announced that it was not going to review the Beer Orders after all, so that it was apparent that the other owners of large tied estates (being at the time the other large brewers like Bass, Allied Lyons and Whitbread) were going to be able to continue to enforce the ties in their leases indefinitely. Inntrepreneur and Courage lobbied the Government to the effect that that would place them at considerable commercial disadvantages, and in February 1997 the Government agreed to release Inntrepreneur and its shareholders from the Undertakings. So after 28 March 1998 the ties continued to bind those Inntrepreneur tenants who had not been released from tie in 1992. In practice Inntrepreneur did in fact release a number of tied lessees from the ties on 28 March 1998, but a lot of pubs continued to be tied after that date and (I believe) are mostly still tied today. However, as I will explain later, there have been a number of changes in the way that the tie is operated, and, although this was not gone into in any depth in the hearing of the present case, my impression is that the tied tenants now have fewer complaints about the tie than many tenants had (or believed that they had) ten or a dozen years ago.
40. I mention for completeness that the events whereby for a time Inntrepreneur was informing its tenants that, because of the Undertakings, the ties would come to an end in 1998, but later Inntrepreneur sought to continue to enforce the ties because it had been released from the Undertakings, have themselves given rise to quite a lot of litigation between Inntrepreneur and tenants. The most recent case is probably a decision of mine in Inntrepreneur Pub Company (CPC) v Sweeney [2002] EWHC 1060 (Ch), in which the judgment was delivered on 27 May 2002.
41. To summarise the history of the Inntrepreneur beer ties during the 1990s, the number of Inntrepreneur pubs which were tied fell sharply on 31 October 1992 because of the TEO. It had appeared likely that all remaining Inntrepreneur pubs would go free of tie on 28 March 1998 because of the Undertakings, but in the event that did not happen because the Government released Inntrepreneur from the Undertakings. Inntrepreneur did in practice release some pubs from tie in 1998, but a lot of the ties continued in force after that date.
42. I will now go back in time to the early period of Inntrepreneur's existence. When Inntrepreneur leases were introduced (which first happened within the Grand Met group, before the formation of the Inntrepreneur group) there was a lot of demand for them, and when Inntrepreneur started its business it substantially succeeded in its objective of having its entire estate let on Inntrepreneur leases. However, quite early in Inntrepreneur's existence things started to go wrong. I am sure that many lessees were well content with the Inntrepreneur leases which they obtained, and indeed there was evidence to that effect. But there is no doubt that an unexpectedly high number of Inntrepreneur lessees had the opposite experience, and soon found themselves in major financial difficulties. As I shall explain more fully later, Mr Crehan was typical of many lessees in this respect. Disaffected Inntrepreneur lessees sought and obtained publicity for their grievances, actual or perceived. Inntrepreneur attracted a lot of adverse publicity, including critical articles in the Press. On one occasion an early day motion attacking Inntrepreneur was tabled in the House of Commons, and was signed by over 100 Members of Parliament.
43. By 1993 or 1994 Inntrepreneur was becoming embroiled in litigation of various kinds with a lot of dissatisfied past or present tenants. Organisations of tenants who were hostile to Inntrepreneur and were having or had had problems in complying with the obligations under their leases started to develop. One was called NAIL (National Association of Inntrepreneur Lessees), the moving spirit of which seems to have been a lady called Mrs Boyes, who was the defendant in one of the early Inntrepreneur cases: Inntrepreneur Estates (GL) Ltd v Boyes [1993] 2 EGLR 112. One of the witnesses for Mr Crehan in the hearing before me was Mr Martin Shepherd. He was an Inntrepreneur lessee whose business failed. After he had had to surrender his lease (which was in 1993) he for some years ran a company known as Group Action Ltd, whose main activity was to assist lessees in their disputes with Inntrepreneur. He was in my opinion a restrained and moderate witness, and not at all the unbalanced hothead whom some of the Inntrepreneur parties seem to have expected him to be. He said that he had been contacted by 'hundreds, if not thousands', of Inntrepreneur tenants who were in financial trouble, and who needed some sort of central coordinator such as, to an extent, he became.
44. I do not know what caused things to go so wrong for Inntrepreneur in these respects. Notwithstanding the beliefs of some of the most disaffected tenants, I do not accept the thesis that Inntrepreneur set out to impose harsh terms on the tenants and did not care when large numbers of them failed. Mr Williams (who, via GME, was the effective chief executive of Inntrepreneur in its earlier years) said that it was unwise to overrent properties, and that the policy of Inntrepreneur was not to exact rents from tenants at levels which the tenants would predictably be unable to afford. I accept that the general policy of the top management of Inntrepreneur was to set affordable rents, that the large number of business failures which Inntrepreneur tenants suffered was not what the top management had wanted or expected, and that the failures and adverse publicity were a major concern for the company. I do not go along with the belief of many tenants that Inntrepreneur did not care about the failure level among its tenants.
45. All the same, it seems clear that Inntrepreneur did not get things right in its early years. The rents were always a good deal higher than the rents which the former landlords (like Courage) had charged to publican tenants who held premises on old style pub tenancies. In addition – a very important point, especially in the present case – the beer tie provisions in the leases bound the lessees to purchase most of their beer supplies from Courage at the full prices in Courage's price lists. Owners or lessees of pubs which were not subject to ties could buy their beers at discounted prices, and in the early 1990s discounts were large: sometimes £80 or more a barrel. (A barrel is 288 pints.) The general pattern was that, the greater the volume of purchases which an untied publican made, the greater was the rate of discount per barrel which he could negotiate with a supplying brewery. The discounts could mean that an untied publican could buy supplies of beer at between 25p and 30p a pint cheaper than an Inntrepreneur tenant, and could attract more customers by passing on the discounts in whole or in part in the form of lower retail prices across the bar. It is apparent that, in so far as competitiveness with other pubs was affected by the prices customers paid for their beer, Inntrepreneur tenants were not in a strong position.
46. As a complaint made to the Commission put it, Inntrepreneur tenants found themselves squeezed between the high rents under their leases and the high prices which they had to pay to Courage for most of their beer supplies. That was by no means the only factor which influenced the high number of failures of Inntrepreneur lessees – the recession, for example, must also have had an impact – but the financial 'squeeze' must surely have played a part in many of the failures. At least one important Inntrepreneur witness very fairly accepted this or something similar to it. Mr Foster thought that it was 'an unfortunate distortion' that there could be two tenants in one street, one of them tied and one of them free of tie. He 'absolutely' would not disagree with the evidence given by several tenants who had been tied but then became free of tie that 'the whole world changed for them'. A witness for Mr Crehan, Mr Cahillane, had in the past been a senior employee of Courage. He had occasionally sat on Inntrepreneur rent panels, which played a significant role in the processes by which rents for individual pubs were set. He said that it was obvious to him that, where a tenant took a lease at the 'market rent' (his quotation marks) set by the rent panel and was then obliged to pay non-market beer prices, he would struggle to survive. One of the major reasons why Mr Cahillane left Courage when he did was that he 'did not feel that the Inntrepreneur tenants had a chance'. Another witness for Mr Crehan was Mr Lumsden, who had a brewing background mainly with Watneys, and who, like Mr Cahillane, had sat on rent panels. He gave similar evidence.
47. I think that Mr Cahillane may have exaggerated, as also did some of the Inntrepreneur tenants whose profit and loss accounts indicated that things had not been as bad for them when they were tied tenants as their witness statements suggested. All the same, I do think that there was a financial squeeze on Inntrepreneur tenants, and, despite the best intentions of Mr Williams and the top Inntrepreneur management, Inntrepreneur and Courage did not get things right in the early years. That is demonstrated by the volume of Inntrepreneur litigation which there has been over the years, far exceeding in magnitude the litigation between non-Inntrepreneur tenants and their pub lessors. Other pub lessors with large tied estates (like Bass, Whitbread and Scottish & Newcastle) soon followed Inntrepreneur in granting 20 years leases on terms similar to those in Inntrepreneur leases. There have been disputes between them and some of their lessees, but nothing on the scale of the disputes between Inntrepreneur and a significant number of its lessees.
48. It is difficult to generalise about the nature of the litigation involving Inntrepreneur lessees. Some cases arose when lessees fell into arrears on their rents, and Inntrepreneur sued for the arrears or sought to enforce forfeiture. Other cases were brought by Courage for unpaid invoices on supplies of beer. That is how the litigation involving Mr Crehan first began. An important trend which developed quite early was the recourse by tenants to what Inntrepreneur and its advisers came to call 'the Euro defence'. Many tenants and their advisers started to advance the argument that the beer ties in the leases were contrary to article 81 (numbered article 85 at the time). The Euro defence also featured prominently in cases where tenants said that they could not survive if they had to pay Courage's list prices, so they stopped buying from Courage and started buying 'out of tie' from other suppliers. On the face of it they were acting in breach of the terms of their leases, but they argued that the beer tie provisions in the leases were contrary to article 81 and therefore void.
49. All of this was becoming a big problem for Inntrepreneur, for all that Inntrepreneur was generally winning the cases which were fought out in court in this country. In those circumstances Inntrepreneur, advised by, among others, its solicitors Herbert Smith (usually represented by the partner Mr Fleck) decided that it should itself approach the Commission, with a view to obtaining support from the Commission for its contentions that there was nothing in the beer tie provisions which infringed article 81 and that the 'Euro defence' had no merits. Inntrepreneur's main contacts with the Commission began in 1992. I will describe them in some detail under the later sub-heading for 'Factual strand 4'. I record now that Inntrepreneur was in contact with the Commission for something like five years, but achieved nothing so far as concerned the leases and operation of the beer ties in its early years, including in particular the years when Mr Crehan was the lessee of The Cock Inn and The Phoenix. In 1998 Inntrepreneur did secure confirmations from the Commission which were acceptable to it, but they related to new ways of operating the beer ties which were not in operation at the times with which this case is specifically concerned.
50. Having mentioned Inntrepreneur's approach to the Commission and having said that I will deal with it more fully under a later sub-heading, I return to Inntrepreneur's activities in this country. One feature of the company in the first part of the 1990s was that tensions started to develop between its two shareholders. Grand Met no longer had any brewing interests in its group, and its interest in Inntrepreneur was as a shareholder in a property investment company. Further, day to day management of Inntrepreneur was in the hands of the Grand Met group via the management agreement between Inntrepreneur and GME. Courage was a brewer, and had a particular interest in wanting to achieve substantial volumes of sales of its beer products through the pubs in the Inntrepreneur estate. Mr Williams said in his witness statement:

"… there were some tensions between Grand Met and Courage as the two companies had different aims and objectives which were potentially conflicting. Courage was interested mainly in its revenue from beer sales and Inntrepreneur was concerned to protect the investment value of its properties."

A particular manifestation of this arose from the practice which started to develop of some lessees ignoring the beer tie in their leases and buying their supplies out of tie from suppliers other than Courage. The lessees' covenants to buy within the ties had been given to Inntrepreneur, not to Courage, but Inntrepreneur, managed by GME, was reluctant to take any sort of decisive action to enforce them. For example, towards the end of Mr Crehan's tenancy of The Phoenix there was a time when he was buying his beers out of tie. Inntrepreneur did nothing about it.

51. Much of the strategic thinking for Inntrepreneur had assumed that the Beer Orders were a first stage, and that a second stage would entail the entire prohibition of beer ties, at least on the part of the larger brewers. Grand Met and Courage had broken ranks with the other larger brewers by giving evidence to the MMC in the 1980s that they believed that beer ties should be phased out. They gave similar evidence in March 1993 to the Agricultural Committee of the House of Commons, which was conducting hearings by way of review of the Beer Orders. However, at about that time the Secretary of State for Trade and Industry cancelled the previously scheduled review of the Beer Orders, and it became apparent that there was not going to be further legislation prohibiting beer ties altogether. Inntrepreneur began to perceive itself to be seriously exposed, because, by the Undertakings, it was bound to the Government to release all of its tied pubs by 28 March 1998. It now appeared that the other large breweries were not going to have to do the same thing.
52. Anxieties of this sort seem to have been affecting the market value of Inntrepreneur's portfolio of pubs, and may have coincided more or less with the change from Mr Williams to Mr Foster as chief executive of Inntrepreneur. Mr Williams formally left Inntrepreneur and GME in April 1995, but he was not heavily involved in Inntrepreneur's affairs from the latter part of 1994. Mr Foster became the sole chief executive in June 1995. There had been a transitional period during which Mr Foster (at the time a director of Courage) and a senior officer within the Grand Met group were joint managing directors of Inntrepreneur. When Mr Foster became the full time chief executive of Inntrepreneur in mid-1995 he resigned from his positions at Courage. In about November 1996 the agreement whereby Inntrepreneur's business was managed by GME had been terminated, and management was brought in-house within Inntrepreneur itself.
53. Mr Foster was specifically charged by the shareholders of Inntrepreneur (GM and the Elders/Fosters group in Australia) to prepare the company for sale to an outside purchaser. One thing which he had to do to that end was to repair as best he could the fractured relationships between Inntrepreneur and a substantial number of its lessees. He also wanted, in his terms, to 'recover' the tie within Inntrepreneur, that is to say to secure Inntrepreneur's release from the Undertakings. I think that he made progress on the first objective (repairing relations with the general body of lessees), although Inntrepreneur certainly continued to have, and still has to this day, quite a lot of hostile lessees and former lessees. Mr Crehan is one of them. Mr Foster did achieve the second objective: I have said earlier that Inntrepreneur was released from the Undertakings in 1997.
54. An important step which Inntrepreneur took while Mr Foster was its chief executive was to introduce a system called RetailLink. This substantially reduced the grievances of tied tenants over having to buy their beers from Courage at list prices and without the generous discounts which were available to free trade competitors. RetailLink commenced in February 1997 and ran until 28 March 1998. The lessees continued to be bound by the ties to purchase their supplies from Courage (or Scottish Courage as the nominated supplier had become, as I will explain below), and they continued to have to pay list prices. However, under RetailLink Inntrepreneur (not Courage or Scottish Courage) paid discounts to the tenants (or to those of them who agreed to participate in RetailLink) by reference to their purchases. I do not know whether the discounts fully matched the sorts of discounts which breweries were paying to free house purchasers, but they were generous enough to play a part in persuading the Department of Trade and Industry to release Inntrepreneur from the Undertakings. Also, as I will explain later, they were regarded as acceptable by the Commission, which had not taken the same view about the structure which operated before the introduction of RetailLink.
55. I said in the foregoing paragraph that RetailLink operated until 28 March 1998. Before I explain what happened after that date there are two other events which I must describe. First, in August 1995 the brewing assets and interests of Courage had been sold to Scottish & Newcastle, which created a division or a subsidiary (I am not sure which) called Scottish Courage to carry on the brewing activities. That is the background to the nominated supplier under RetailLink becoming Scottish Courage rather than Courage. I should make clear that the transaction with Scottish & Newcastle was a sale of underlying business assets, not a sale of the companies which had carried them on. Before the sale Fosters (of Australia) owned Courage Group Limited and Courage Group Limited owned Courage Limited. Courage Limited owned the underlying brewing businesses. After the sale to Scottish & Newcastle Fosters still owned Courage Group Limited and Courage Group Limited still owned Courage Limited, but Scottish & Newcastle owned the main brewing assets which had formerly been owned by Courage Limited. There have been subsequent changes of company names. Courage Group Limited is now called Brewman Group Limited, and is the second defendant to Mr Crehan's claim. Courage Limited became called The Inntrepreneur Beer Supply Company Limited, later shortened (or so I believe) to TIBSCO Limited. Under one or other of those names it has featured in some of the litigation which has continued to flow from the structure of Inntrepreneur and other companies associated with it by shareholdings or by regular business links.
56. The second event to mention is that on 21 September 1997 The Grand Pub Company Limited acquired an option to purchase the Inntrepreneur companies. It was exercised on 28 March 1998. The Grand Pub Company Limited was associated in a complicated way with the Nomura group of companies ultimately owned in Japan. The importance of this is that since 1998 there has been no ownership link between Inntrepreneur and any brewery, so there are no shareholding pressures on Inntrepreneur to limit the range of beers available for purchase by its tied tenants.
57. Finally before I can move on to the next sub-heading and describe the specific circumstances of Mr Crehan, I wish briefly to describe what succeeded the RetailLink system after 28 March 1998. That was the date on which the Beer Procurement Agreement for Courage (later Scottish Courage) to be the supplier of beers to tied Inntrepreneur tenants terminated, and also the date on which the Inntrepreneur group came to be owned by The Grand Pub Company Ltd. (It was also the date on which Inntrepreneur would have been required by the Undertakings to release all its remaining tied pubs from tie, if it had not been released from the Undertakings in 1997.) Inntrepreneur introduced a new system called SupplyLine. The lessees continued to be tied to make their purchases of beers (other than one guest ale, non-alcohol beers, and low alcohol beers) from Inntrepreneur's nominated supplier. The nominated supplier became SupplyLine Limited, a company in the same group as Inntrepreneur. As such it has no shareholding or other links to brewers, and it offers a list of products to Inntrepreneur lessees which are brewed by many different brewers (fifteen or more). So the lessees are still tied in a sense, but through SupplyLine they have access to a wide range of products wholly uninfluenced by shareholding connections. I do not know whether SupplyLine offers discounts, and the SupplyLine structure arose long after the period with which I am directly concerned. But I did not detect any suggestion in the hearing that the current body of tied Inntrepreneur lessees exhibits any major dissatisfaction with or hostility to the present arrangements. It seems possible that relations between Inntrepreneur and its tied tenants have settled down and are now less strained than they were for much of the 1990s, and certainly in the years from 1991 to 1993 when Mr Crehan was the lessee of The Cock Inn and The Phoenix.

Factual strand 3: Mr Crehan and the history of his involvement with The Cock Inn and The Phoenix

58. Mr Crehan is Irish. He was born in Ireland in 1947. He first worked in the pubs business at the age of 19. He became a barman in a pub in Dublin, and, as he engagingly expresses it, 'poured pints of Guinness for the first six months'. He came to England in 1967, and has lived in this country since then, although he has relatives in Ireland and clearly keeps up his connections with his home nation. He worked in various pubs in the south of England over the years, starting as barman in a pub in Clapham, and progressing through more senior and responsible jobs until he became an employed manager of a succession of managed houses.
59. Early in his time in England he met Dolores Carroll, who is also Irish, and they were married in 1968. This is not a case in which it is necessary to go into the nature of the two of them as a family, but they gave to me all the appearances of being a close and committed couple. They have two sons, who were born in 1969 and 1970. A number of customers of pubs which they have run gave evidence. Clearly everyone liked them. Mr and Mrs Crehan each gave evidence, and they gave the impression of being sincere and likeable people.
60. The last pub of which Mr Crehan was a manager was a Courage managed house, the Load of Hay in Bedfont, to the south of London Airport. He started there in September 1989, and was there for a little less than two years – until he became the tenant of The Cock Inn and The Phoenix. The Load of Hay had been a difficult pub, and two previous managers had failed to turn it round. Mr Crehan said in his evidence, which was not disputed in this respect, that he and his wife improved the quality of the pub, and also significantly increased the turnover. He looked after the cellar and the bar. She prepared the food and did the book work. They exceeded Courage's target in the first year, and were paid a bonus as a result.
61. In 1991 Mr Crehan was aware of Inntrepreneur and its business. He was also aware that a number of pubs, some of which had previously been managed houses, were available for letting on the terms of Inntrepreneur leases. He and his wife were attracted by the idea of running their own pub, and believed that they had the experience and the abilities which would enable them to do so successfully. One pub in which they were particularly interested was The Phoenix, in Staines. Staines is only a few miles from Bedfont. Mr Crehan did not know the town particularly well, but he did know something about The Phoenix. The Phoenix was a Courage managed house at the time, and occasionally meetings of managers of Courage managed houses in the area were held at The Phoenix. Mr Crehan had seen the pub on those occasions, and he thought that it had potential. As well as the large bar area there was a function room. It needed work doing to it, but Mr Crehan thought that, once the work had been done, there would be good possibilities of attracting new business. There was a small tributary of the Thames behind the pub, with a derelict area of land, quite like an island, across it but included in the grounds of the pub. Mr Crehan thought that that area could be made into an attractive beer garden. He knew that The Phoenix was one of the pubs which Inntrepreneur was offering for letting, so he contacted Inntrepreneur and applied for the lease. He took advice in the first instance from an experienced pub stocktaker, who was introduced to him by a friend who ran a pub in Twickenham.
62. Under Inntrepreneur's system for new lettings of pubs the rents to be sought by Inntrepreneur were established by panels, but the contacts with prospective lessees were handled by individual employees, known as consultants. The consultant with whom Mr Crehan had contacts was Mr Ebdon. Mr Ebdon gave evidence, but he was not able to help much about the exchanges between himself and Mr Crehan. He explained that over about three years as a letting consultant he had been responsible for letting between 150 and 200 pubs, and, though he had searched his memory, he could not recall anything specific about Mr Crehan or about The Cock Inn and The Phoenix. Inntrepreneur appears to have retained very few documents to cast light on the negotiations. However, Mr Crehan remembered a good deal, as one would expect, and the outlines of what happened can be reconstructed in broad terms.
63. Mr Ebdon told Mr Crehan at some stage in the exchanges between them that if he (Mr Crehan) was offered a lease of The Phoenix, he would have to take a lease of The Cock Inn as well. The Cock Inn is only a few yards away from The Phoenix, diagonally across a quiet crossroads. Mr Crehan had not been interested in The Cock Inn, but the negotiations appear to have been conducted on the basis that it would be both pubs or neither. However, the limited quantity of financial documentation which survives from the period before agreement was reached relates solely to The Phoenix. Another thing which Mr Crehan remembers being told by Mr Ebdon was that both The Phoenix and The Cock Inn had weekly takings of about £4,000 a week. Although Mr Ebdon was not able to confirm that he said that or something like it I think that he must have done. Mr Crehan would not have made it up, and in any case he supplied the figure to his accountant, Mr Neal (of whom more later). Where can Mr Crehan have got the figure from if not from Mr Ebdon?
64. Mr Crehan had perhaps three meetings with Mr Ebdon over what seems likely to have been a fairly short period in the summer of 1991. In addition there were several telephone conversations. At (probably) one meeting Mr Crehan was accompanied by Mrs Crehan, and on one occasion (I cannot say whether it was the same meeting or not) he was accompanied by Mr Neal. One of the items which Inntrepreneur wanted to see from an applicant lessee was a projected business plan. A draft plan for The Phoenix (in the form of an outline trading account) was prepared for Mr Crehan by the stocktaker who had been introduced to him by his friend. It showed an estimated profit before rent of £65,840.11. Mr Crehan retained a copy. It is, to be frank, a rather rudimentary document, and has some particular deficiencies (for example no provision for the costs of providing entertainment, although there was an added note – I think in Mrs Crehan's handwriting – that the Crehans planned to provide more entertainment for younger people). However, the business plan seems to have satisfied Mr Ebdon: at some stage after Mr Ebdon saw it Inntrepreneur offered a lease of The Phoenix to Mr Crehan (together with a lease of The Cock Inn); the copy of the business plan which Mr Crehan has retained has some notes on it in Mr Ebdon's handwriting, including a manuscript tick against the stocktaker's figure for expenses.
65. As well as consulting the stocktaker Mr Crehan considered – entirely correctly and in conformity with advice which Inntrepreneur itself gave to applicants for leases – that he needed more expert financial advice. Therefore he instructed a firm of accountants, Freeman & Co, which specialised in accounting for licensed premises. Mr Neal of that firm acted for Mr Crehan. I do not think that they have had any connection beyond the unfortunately brief period while Mr Neal was advising Mr Crehan. Mr Neal was a witness for Mr Crehan in the trial. At some stage in the negotiating period Mr Neal prepared in manuscript a more detailed projected profit and loss account for The Phoenix and for The Cock Inn. Based on a turnover of £4,000 a week at each pub and making assumptions for catering receipts, machine income, and various heads of expenditure which Mr Neal, based on his experience and on discussions with Mr and Mrs Crehan, thought appropriate, Mr Neal projected annual net profits at The Phoenix of £18,906 and at The Cock Inn of £20,506. These profits, unlike the figure in the stocktaker's business plan, were the profits after rent paid to Inntrepreneur. Mr Neal assumed rents of £36,000 at The Phoenix and £35,000 at The Cock Inn.
66. Those rents were the actual rents provided for in the agreements for lease, so it appears that Mr Neal prepared the projected accounts at some time after the rents were fixed, or at least after it was known what levels of rents Mr Ebdon was asking for on behalf of Inntrepreneur. In the negotiations about rent Mr Crehan had initially offered £26,000 a year for The Phoenix. I do not know whether he made any offer for The Cock Inn. Mr Crehan recalls that at an early meeting Mr Ebdon said that Inntrepreneur would want at least £30,000 for each pub. Eventually Mr Ebdon said that Inntrepreneur's required rents were £36,000 for The Phoenix and £35,000 for The Cock Inn, and (as Mr Crehan recalls) Inntrepreneur would not budge from those figures.
67. There are two other matters which arose in the course of negotiations which I must describe. One concerns repairs to the pubs. The other concerns Mr Carroll, Mrs Crehan's brother. Inntrepreneur required Mr Crehan, as a condition of obtaining the leases, to carry out quite substantial programmes of repairs to both pubs within the first year of taking them over. Mr Ebdon said that the repairs would cost about £60,000, but a surveyor consulted by Mr Crehan estimated that the costs would be approaching £120,000. Mr Crehan protested to Mr Ebdon, and eventually (very close to the time when contracts were exchanged, or possibly even just after it) Inntrepreneur agreed upon rent concessions in the first year to reflect the cost of the repairs which Mr Crehan was undertaking to carry out. The combined rents (£71,000 for the two pubs) would be reduced to £35,000 in the first year. In fact Mr Crehan expected that the cost to him would be manageable, because Mr Carroll was a builder and would do the works much more economically.
68. The matter concerning Mr Carroll which I need to describe does not concern the works of repair, but the more fundamental topics of how Mr Crehan's new business venture was to be funded, and whether it was his venture alone or whether Mr Carroll was a joint participant with him in it. Mr Crehan could not take on two pubs as lessee without a reasonable amount of capital to back him. There would be 'ingoings' to pay: the price of the glassware, furniture and so on with which the pubs were equipped, and which would be in the pubs when Mr Crehan's occupation commenced. There would be costs incurred on the repairs, even taking into account the rent reductions in the first year and Mr Carroll's ability to do most of the work himself. There would be costs of improvements which Mr Crehan wanted to do, for example building a new footbridge across the small river behind the pub and creating a beer garden there. There would be the more general need for a reasonable cushion of working capital to finance the operations of the business in so far as it could not be assumed that the takings would immediately cover all the running expenses. And the family would need some money to live on while they were getting their business established. Where was the money for these various purposes going to come from?
69. The answer was that most of it was to come directly or indirectly from Mr Carroll. In the middle of 1990 he had won IR£250,000 on the Irish lottery. He gave IR£25,000 to his sister, Mrs Crehan, and he paid to her a further IR£25,000 as the price of her interest in the house of their late father, who had died in 1990 and left his house to Mr Carroll and Mrs Crehan. So Mrs Crehan had IR£50,000, originating from Mr Carroll in the two ways which I have described, which could be made available for the pubs. In addition, when Mr Crehan decided to take on the leases of the pubs, Mr Carroll agreed that he would contribute a further sum of about IR£50,000 to the business. The precise basis on which he did this is, in my view, most unclear. Was it a gift to Mr Crehan? Was it technically a loan to Mr Crehan, but in circumstances where in practice Mr Crehan could assume that he would not have to pay it back unless and until it was easy to do so? Was it some form of investment by Mr Carroll for an interest in the business? I will have to say more about these possibilities later (see paragraphs 292 et seq below), but for the moment the point which I make is that there was money available to finance the venture in its early period, and the money traced originally, by various routes, to Mr Carroll's lottery win.
70. The precise status of Mr Carroll in relation to the pubs and the business of operating them was further affected by what happened as regards the title to the two agreements for leases. In the event, when agreements were exchanged they were expressed to be made between (1) Inntrepreneur's predecessor (see the next following paragraph) as landlord, and (2) Mr Carroll and Mr Crehan as 'the Lessee'. This led Mr Neal to make the natural assumption that the leases and the business were to be owned by Mr Carroll and Mr Crehan in partnership. To anticipate, when Mr Neal prepared accounts for the first twelve months trading he prepared them as accounts of a 50/50 partnership. It would not be at all unusual to have a partnership between one person who understood the nature of the business and would in practice run it, and another person who put up a substantial part of the money which was going to be used in the business. However, Mr Crehan, Mrs Crehan and Mr Carroll all gave evidence to me that it was not like that at all, and that Mr Neal's assumption was incorrect. The evidence of all three of them was that Mr Crehan was the sole owner of the business, notwithstanding that the principal assets of the business were the two agreements for lease and that Mr Carroll was a party to those agreements jointly with Mr Crehan, and also notwithstanding that Mr Carroll contributed a substantial amount of capital to the business. They said that to put Mr Carroll on the title to the leases was a nice gesture, but nothing more than that. If at some future time he wanted to become a publican in Ireland it might help him to have been one of the nominal lessees of Mr Crehan's two pubs. In my opinion this is a thoroughly untidy aspect of the case. I will have to come back to it later, but for the moment I will continue with this judgment on the basis that, despite what might have appeared from the agreements and from the source of the funding, Mr Crehan was the sole proprietor of the business.
71. While I am referring to the agreements for leases of the two pubs there is a detailed fact which I should mention. One would have expected the other party to them (other, that is, than Mr Carroll and Mr Crehan) to have been Inntrepreneur. In fact it was Courage Group Ltd (now renamed Brewman Group Ltd, the second defendant to Mr Crehan's claim). The reason for this was that the two pubs had been managed houses and were intended to be transferred from Courage Group Ltd to Inntrepreneur with a view to their being let on Inntrepreneur leases, but the transfers had not taken place at the time when agreements with Mr Crehan and Mr Carroll were exchanged. The agreements described Inntrepreneur Estates (CPC) Ltd as the 'Intended Reversioner', to which the freeholds were going to be transferred. They were so transferred soon afterwards, and for all effective purposes it was Inntrepreneur which was Mr Crehan's landlord throughout.
72. The agreements for leases were exchanged on 11 July 1991, and Mr Crehan's occupation of the pubs began on that date. The leases themselves were only to be granted upon Mr Crehan completing the works of repair which the agreements provided for. Until then he was entitled to possession of the premises 'as licensee only', but was liable for the rents and bound by the covenants contained in the leases. Forms of lease were annexed to the agreements. The leases were in the standard form for Inntrepreneur leases: 20 years terms, rent reviews at five yearly intervals, repairing, maintenance and insurance covenants on the part of the lessee, assignability of the leases after the first two years (except to brewers or associated companies of brewers), the general range of detailed covenants typically found in lettings of business premises, and – critical so far as this case is concerned – the beer tie provisions.
73. At this point it is convenient for me to give more details than I have given so far of the contents of the beer tie provisions.

Mr Crehan entered into agreements for leases. The agreements said that his occupation was as licensee until the leases were formally granted. In the events which happened the leases never were formally granted, because Mr Crehan did not complete the works of repair. However, the forms of leases were annexed to the agreements.

By clause 9 of each agreement for lease Mr Crehan had at all times to comply the covenants and obligations contained in the lease as if the lease had been granted. The agreement did not itself contain the beer tie provisions, but those provisions took effect by virtue of this clause 9.

In the lease the lessee's covenants were contained in clause 4. By the last of them, in sub-clause (34), the lessee (and thus Mr Crehan) covenanted with Inntrepreneur 'to comply at all times with the terms of the First Schedule hereto'. The First Schedule contained the detailed beer tie provisions.

The critical provision of the First Schedule was clause 2(1):

Subject to the provisions of this Schedule the Lessee shall purchase from the Company [Inntrepreneur] or its Nominees and from no other person firm or company all such Specified Beers as he shall require for sale in the Premises …

One effect was that the supplier to Mr Crehan could be Inntrepreneur itself or, if Inntrepreneur so chose, another person nominated by Inntrepreneur. At the time of Mr Crehan's agreements it had nominated Courage.

The tie applied to purchases of 'Specified Beers'. That term meant beers of the types set out in Part A of an Appendix. Thirteen types of beer were listed in the Appendix, which certainly seems exhaustive. The beers were not listed by brand name but by types of beer, for example 'Light pale or bitter ale', 'Export or premium ale', 'bitter stout or porter', 'Lager', 'Export or premium lager, also known as 'Malt Lager' or 'Malt Liquor'', 'Strong lager'.

The 'Specified Beers' were said to be 'represented by the brands or denominations of beer stated in the Company's Price List issued before the date of' the agreement for lease'. There was a definition of 'Company's Price List' which, by using the expression 'price list for the time being' made it clear that the price list could be changed from time to time, as in fact it was. It also said that it was the Price List of 'the Company' (which meant Inntrepreneur) or, where applicable, of its 'Nominees'.

'Nominees' was also defined. It meant 'the person … specified in the Particulars and/or such person firm or company as [Inntrepreneur] may from time to time specify'. The person specified in the Particulars was Courage Limited, but the definition made it clear that Inntrepreneur could change the identity of the Nominee if it wanted. Inntrepreneur did do that when it nominated SupplyLine to be the Nominee with effect from 29 March 1998. I am not sure what happened in 1995 when Scottish Courage rather than Courage became the nominated supplier. Possibly Inntrepreneur nominated Scottish Courage, or possibly the benefit of the earlier nomination of Courage was one of the business assets which Courage assigned to Scottish & Newcastle on the occasion described in paragraph 55 above.

I have made the point earlier that Courage's price lists in practice carried a large range of beers, naturally including the various brands which Courage brewed itself (some of them being brewed under licence from foreign owners of the brands), but also including quite a large number of brands which were not brewed by Courage. (See paragraph 34(ix) above.)

Paragraph 2(2) of the Schedule makes it clear that Inntrepreneur or its nominee (Courage at the outset) could change the brands on the price lists from time, by adding or deleting brands. It was not possible, however, to add a new type of beer to the list of 'Specified Beers'.

Paragraph 7 of the Schedule provided that the lessee could purchase one guest ale otherwise than from Inntrepreneur or its nominee.'

Paragraph 9 was a lengthy paragraph which imposed on the lessee a 'Required Beer Barrelage', more commonly referred to in practice (though not in the actual wording of the lease) as the Minimum Purchase Obligation (or MPO). The lessee was bound to purchase a specified minimum quantity of beer and was supposed to pay compensation at a predetermined rate for every barrel by which he failed to meet this obligation. However, in practice this obligation was hardly ever enforced. Mr Crehan did not (I think) succeed in complying with his MPO, at least at The Cock Inn, but Inntrepreneur made no attempt to recover compensation from him. (I have mentioned earlier that Inntrepreneur was suffering from a lot of bad publicity, and I surmise that, if Inntrepreneur had adopted a policy of trying to enforce compensation claims against struggling tenants who could not meet their MPOs, the publicity would have become a great deal worse than it already was. In any case, the compensation would have gone to Courage, and, as Mr Williams said in his evidence, Inntrepreneur was not interested in enforcing it.)

There are other provisions in the First Schedule to the leases, but the ones which I have mentioned are sufficient for the purposes of this judgment.

74. Mr and Mrs Crehan took over the pubs with high hopes, and they say (I am sure correctly) that they worked very hard to make them attractive and successful. They aimed to attract a younger clientele to the The Phoenix in the evenings, and to that end had always visualised putting on entertainment several times a week. Their idea was that The Cock Inn should appeal more to older pub-goers, and they tried to make the pub look attractive to the type of customer they had in mind. They provided food, which Mrs Crehan cooked herself, at low prices. However, despite their hopes and efforts, things started to go wrong. Sales were far below expectations at both pubs, and especially at The Cock Inn. With a view to attracting custom to The Phoenix Mr Crehan judged it appropriate to put on considerably more entertainment than he had planned, and thereby had substantially greater costs to meet for fees to performers and the like. The prices which Mr Crehan charged for drinks in the pubs were based on advice which he requested from, and was given by, Mr Neal. When business failed to materialise at the levels Mr Crehan needed for the pubs to succeed he did not think that he could afford to reduce his prices.
75. Mr Neal prepared accounts for the first twelve months to 10 July 1992. At The Phoenix there had been a net loss of £1,157. At The Cock Inn there had been a net loss of £13,810. Of capital of over £90,000 introduced into the two pubs less than £20,000 remained. The balance had been consumed by losses and drawings by Mr Crehan and Mr Carroll. The drawings had not been extravagant: Mr and Mrs Crehan and Mr Carroll had had to meet their living expenses, and in the absence of profits from the pubs for that purpose they had had to resort to the capital which had been put into the business when Mr Crehan commenced to carry it on. (I ought to mention that for quite a lot of the first year of trading Mr Carroll was living at one of the pubs, working on some of the repairs required by the agreements for leases, and doing other building works, like creating the beer garden at the back of The Phoenix.) The net cash balance for the two pubs at 10 July 1992 was recorded as only £2,377. About £47,000 had of necessity been paid for the 'ingoings' (the glassware, furniture, etc in the pubs when Mr Crehan acquired them). Some cash had been spent on some of the repair and other works which Mr Carroll had carried out. Some had gone on funding the losses, and some had gone on the drawings to meet living expenses. There had been cash receipts over the year, in the form of receipts across the bar from customers, but taking all things together there was not much cash left. If all current assets and liabilities were taken together (not just cash) current assets were under £50,000 while current liabilities were over £80,000.
76. The first trading year had been a disaster. What had gone wrong? At neither pub had the turnover come remotely near to what had been expected. At The Cock Inn the beer barrelage in 1990 (the year before Mr Crehan took over) had been 335. In Mr Crehan's first year of trading it was 197 or 201 (the statistics differ). At The Phoenix a barrelage in the region of 400 had been expected. The barrelage achieved was 271. I should add that that was the same as the actual barrelage in 1990, but there is a lot of evidence that in the case of The Phoenix 1990 was regarded as a freak low year, and that in all earlier years barrelages of 400 or more had been achieved. Gerald Eve, Inntrepreneur's and Courage's valuers, had valued The Phoenix for mortgage purposes in January 1991; they assumed a barrelage of 420. Mr Butters, a partner in Gerald Eve and Inntrepreneur's expert valuation witness in the trial, in considering the market rent of The Phoenix in mid-1991 – when Mr Crehan's occupation commenced – assumed a barrelage of 420.
77. Why did the actual sales of beer and other products in The Phoenix and The Cock Inn turn out to be so low? This is one of the disputed issues in the trial, and I shall examine it at a later stage. I ought, however, to record now what Mr Crehan says about it. His case is that the low turnover was not attributable to failings on his part, but to the impact of competition from other pubs, and one pub especially, which were able to purchase their beers at discounted prices and to sell it to customers at prices with which he could not possibly compete. His problem, as he sees it, was that by virtue of the beer tie he was bound to purchase most of his beer supplies (including all of his supplies of lager, by far the largest seller in the pubs) at the full prices in Courage's list, whereas competitors could buy their supplies at discounts which left him suffering an unsustainable competitive disadvantage.
78. The particular competitor pub which Mr Crehan identifies as the main cause of his downfall is The Angel, an untied pub on the High Street about 150 or 200 yards from The Cock Inn and The Phoenix. He says that within about two weeks of his arrival at The Cock Inn and The Phoenix The Angel dramatically cut its prices. It may have happened that way, although it is possible that The Angel was already selling beer at the low prices before Mr Crehan took over The Cock Inn and The Phoenix, and that Mr Crehan did not realise that for a few weeks after his arrival. Either way the evidence, which in broad outlines I accept, is that, while Mr Crehan, guided by the advice of Mr Neal, was selling his major items of turnover, Fosters lager and Courage best bitter, at about £1.60 and £1.40 a pint respectively, The Angel was selling the same two products at about £1.20 and £1.00 a pint. Several witnesses, both regular drinkers and experts, expressed the view, with which I concur, that, while price differentials of about 10p a pint would not make much difference to levels of turnover, differentials of about 40p a pint were a different matter.
79. Mr Crehan also says that later in his occupation he started to suffer from similar price competition from a nearby pub which had been acquired by new owners and had reopened under a new name as The Hobgoblin. Having heard evidence from a director of the company which ran The Hobgoblin (Mr Adams), I believe that Mr Crehan has overestimated the extent to which low prices at The Hobgoblin affected competition between that pub and his own. I do not think that The Hobgoblin pursued a regular policy of selling beer at heavily reduced prices. That is not to say that it did not occasionally run sales promotions based on reduced price levels: for example, Mr Adams thought that it might well have done that for two weeks or so immediately after it reopened under its new name.
80. At all events, Mr Crehan's case, which I will examine at a later point, is that, if he had not been required by the beer ties to purchase most of his supplies at Courage's full list prices, he would have been able to compete on prices with other pubs like The Angel and would have survived. Thus he says that it was the beer ties which caused his business to fail.
81. The immediately preceding paragraphs have commented on why things went so badly for Mr Crehan in his first year of trading. I now resume my account of his occupation of The Cock Inn and The Phoenix. He and his wife persevered through the second half of 1992 and into 1993, but they could not turn the pubs round, particularly The Cock Inn. They had the additional problem that at both pubs, but principally at The Cock Inn, they had not carried out all of the works of repair which they were required to carry out by the agreements for lease. Mr Dowling, Inntrepreneur's internal surveyor, had been considerate about this and had allowed one or more extensions of time, but the reality was that Mr Crehan, even with the help of Mr Carroll, was not going to be able to complete the works, at least at The Cock Inn. On 4 March 1993 Inntrepreneur agreed to accept from Mr Crehan a surrender of his agreement for lease at that pub. So ended Mr Crehan's business venture so far as The Cock Inn was concerned. The position at The Phoenix was different, and I describe it in paragraphs 83 to 86 below.
82. There are no accounts for the trading period at The Cock Inn from 11 July 1992 to the date of surrender, but Mr Main, the expert accountancy witness for Mr Crehan, has reconstructed the profit and loss for that period as best he can from such accounting records as are available and from estimates where there are no records. He calculates that there was a small estimated profit for the period of £2,849. On that basis, over the 20 months that Mr Crehan traded at The Cock Inn he made an overall loss of £10,961.
83. I turn to The Phoenix, and deal with the period after Mr Crehan's first year there. He did not give up his agreement for lease of The Phoenix at the same time as he gave up his agreement for lease of The Cock Inn. He carried on trading at The Phoenix, trying to survive and to have his business turn the corner into a reasonable level of profit. However, he did not succeed, and on 7 September 1993 he surrendered the agreement for that pub as well. So he traded there for a total of some 26 months. As with The Cock Inn there are no accounts for the trading period at The Phoenix after Mr Crehan's first complete year (the year to 10 July 1992), but Mr Main has done his best to reconstruct a profit and loss account. He estimates a loss for the period from 11 July 1992 until 7 September 1993 of £33,369. If that is correct the loss at The Phoenix for the whole 26 months of trading was £34,526.
84. One event affecting The Phoenix in Mr Crehan's second year of occupation which may be important is that on 31 October 1992 he was released from the beer tie so far as it applied to The Phoenix. (The tie continued to apply as respects The Cock Inn.) It will be recalled from my general account of Inntrepreneur's business that, as required by the Undertakings, it released 2,098 pubs from tie on that date. The Phoenix was one of the pubs which it released. I believe that from the time when Mr Crehan's occupation of The Phoenix commenced he knew that Inntrepreneur had designated it as one of the pubs which it was going to release from tie. It might have been expected that when The Phoenix went free from tie Mr Crehan's fortunes would take a turn for the better: he would no longer have to pay Courage's undiscounted prices for any of his supplies of beer, whereas in the past he had had to pay those prices for all his supplies except supplies of the guest ale, non-alcohol beers and low alcohol beers; and he ascribed his financial problems to being unable to obtain discounts on the general run of his purchases. However, Mr Crehan explained that he was already too deeply in financial trouble for the release from tie to make much difference. He told me that he owed large amounts to Courage for unpaid invoices for beer which he had received in the past but had not paid for yet. Courage could have called in the debt immediately and effectively forced him out of business. Charringtons (in the Bass group) offered him discounts of £60 per barrel, but he felt unable to do business with Charringtons because of his debts to Courage. Courage also offered him discounts, but quite soon after he went free of tie Courage withdrew his credit and required him to pay cash on delivery for further supplies. He had major problems raising the cash to comply, and for some time bought his supplies, or some of them, from a firm of wholesalers. Going free of tie at The Phoenix in November 2002 was not enough to save Mr Crehan's business at that pub, and, as I have said, in September 1993 he surrendered his agreement for lease and ceased to trade. I believe that he owed arrears of rent to Inntrepreneur and unpaid debts for beer supplies to Courage. He was unable to pay either of them.
85. In March 1993 he had entered into a financing transaction with a company called Bampton Finance Limited. It should have raised something over £18,000 which he needed to complete the outstanding repairs to The Phoenix still required by the terms of the agreement for lease. The transaction with Bampton Finance Ltd was structured as a sale and lease-back of the furniture and fittings of the pub. It was on very expensive terms. In cross-examination of Mr Main (the expert accountancy witness for Mr Crehan) Mr Lewison suggested to him that the Bampton Finance transaction was hardly the decision of an astute businessman. Mr Main replied that it was 'probably the decision of somebody who is in a desperate financial position and knows that he has got to do his repairs.' Everything was going wrong for Mr Crehan at this time. If I have understood correctly, the Bampton Finance transaction was linked in some way with a contract between Mr Crehan and a building company called InnPlan Contracts Limited for InnPlan to do some items of works which Mr Carroll had not been able to do. The Bampton Finance money went to InnPlan, which did less than £7,000 of work and then became insolvent. Mr Carroll had to complete the works. Mr Crehan was still liable to Bampton Finance for the full amount, and he told me that under a court judgment he is still paying instalments of money to Bampton Finance to this day.
86. Despite Mr Crehan's desperate efforts to keep going at The Phoenix it became apparent that his debts were too great. For a time he left his wife and Mr Carroll in charge of the pub for a lot of the time and tried to obtain paid employment himself elsewhere. He was hoping to earn money which would enable him to carry on at The Phoenix in the hope that in time things would improve. He did not succeed in earning money elsewhere. A manager of Inntrepreneur suggested to him that he should surrender his agreement for lease. He consulted his accountant, Mr Neal, who said that, since he was just accumulating debt at The Phoenix, he would be better off handing the keys back. Mr Crehan accepted the advice, and, as I have said a few paragraphs earlier, he surrendered the agreement on 7 September 1993.
87. Since Mr Crehan gave up The Cock Inn and The Phoenix he has made many job applications in trying to find employment as a publican, but has not succeeded. There has been quite a lot of publicity for his role as a leading litigant against Inntrepreneur and Courage, and he believes, rightly or wrongly, that he has been blacklisted in the trade. He and his wife have been on income support since they left The Phoenix.

Factual strand 4: Inntrepreneur's contacts with the Commission in Europe

88. I have described earlier what led to Inntrepreneur's contacts with the Commission (see especially paragraph 49). By way of brief reminder, in many cases – some concerning beer prices unpaid to Courage and others concerning landlord and tenant disputes between Inntrepreneur and lessees – lessees were raising what Inntrepreneur referred to as 'the Euro defence'. The central plank of the Euro defence was that the beer ties in the leases were contrary to article 81. Courage was having difficulty over recovering debts for beer already delivered, and Inntrepreneur was having difficulty over enforcing the rights which it appeared to have under the leases. For example, if a lessee was in arrears of rent and Inntrepreneur sought to forfeit the lease it might find itself confronted with a defence that the beer tie was unlawful and that one consequence was that Inntrepreneur could not forfeit the lease after all. In those circumstances Inntrepreneur and Courage notified the terms of the Inntrepreneur leases to the Commission on 17 July 1992.
89. At this point I need to digress and consider the structure of article 81, and also some matters of EC procedure. I have quoted the relevant wording of article 81 earlier (see paragraph 5). In brief article 81(1) prohibited all agreements between undertakings which might affect trade between Member States and which had as their effect the prevention, restriction or distortion of competition within the common market. Agreements so prohibited were void under article 81(2). However, that would not be so after all if the leases were saved from the invalidating effect of paragraphs (1) and (2) of article 81 by paragraph (3). As I explained in paragraph 7 above, paragraph (3) of article 81 provided that paragraph (1) could be declared inapplicable in the case of an individual agreement or a category of agreements which met certain criteria. The Council had made a Regulation, sometimes referred to as the 'Block Exemption', under which an agreement which came within the detailed terms of a paragraph in the Regulation was taken out of article 81(1) by article 81(3). In addition the Commission could grant individual exemptions under article 81(3) to particular agreements even if they did not come within the Block Exemption.
90. The Inntrepreneur lessees who were advancing the Euro defence were saying that, because of the beer tie provisions, the Inntrepreneur leases, or at least the tying provisions in them, first, were within article 81(1), and, second, did not comply with the Block Exemption. There were three possible answers to this which Inntrepreneur and Courage might advance: (1) the Inntrepreneur leases were not within article 81(1) in the first place; (2) if they were they were taken out of it by the Block Exemption; (3) if necessary the Commission should grant an individual exemption under article 81(3). By the notification to the Commission Inntrepreneur and Courage hoped to obtain confirmation from the Commission that all three, or at least any one, of the three possible ways out of article 81 applied to the leases. In order of preference and of logical application Inntrepreneur relied on the three ways out in the above order. The first argument was that article 81(1) did not apply to Inntrepreneur leases in the first place (referred to as 'negative clearance', as explained below); if that was wrong the second argument was that the Block Exemption applied; if that too was wrong the third argument was that the Commission should grant an individual exemption.
91. The Commission is the executive of the European Community. Under article 211 of the EC Treaty the Commission is charged with ensuring that the provisions of the Treaty, and the measures taken pursuant thereto, are applied and observed. One of the Commission's functions is to enforce the competition rules of the Community, including article 81 and Regulations about competition which have been made by the Council. The Commission has 20 members, nominated by the Governments of the Member States. They are supported by a large permanent staff. At the times relevant to this case the Commissioner with particular responsibility for competition policy was Mr Van Miert. There are different divisions within the Commission. The division responsible for competition policy was DG IV. The Director (or a Director) of the Division was Mr Rocca. Two officials within his department, who took particular responsibility for Inntrepreneur's notification and matters connected with it, were Mr Mensching and Mr Van Erps. Most of Inntrepreneur's direct dealings with the Commission took the form of meetings and correspondence with Mr Mensching and/or Mr Van Erps. I may be wrong, but I have the impression that Mr Mensching was senior to Mr Van Erps.
92. The principal Regulation which the Council has made in the area of competition policy and law is Regulation 17/62/EEC, commonly referred to as Regulation 17. It is quite a long Regulation. I need only mention a few of the articles in it.

Article 2 is headed 'Negative clearance', and provides as follows:

"Negative clearance

2. Upon application by the undertakings or associations of undertakings concerned, the Commission many certify that on the basis of the facts in its possession, there are no grounds under Article [81](1) or Article [82] of the Treaty for action on its part in respect of an agreement, decision or practice."

In the present case, and in this judgment, references to whether the Commission would or would not give negative clearance are the equivalent of references to whether or not the beer tie provisions of Inntrepreneur leases were or were not within article 81 of the EC Treaty.

Article 3 provides that, if the Commission finds that there has been an infringement of article 81 or article 82, it may by decision require the undertakings concerned to bring the infringement to an end. The Commission may exercise this power either on its own initiative or upon an application to it by persons who claim to have a legitimate interest. Applications of this sort were made against Inntrepreneur by NAIL and by a number of Inntrepreneur lessees, including Mr Crehan.

By article 4 of Regulation 17 agreements in respect of which individual exemption under article 81(3) of the EC Treaty is requested must be notified to the Commission.

Article 9 provides that the Commission has the sole power to grant individual exemptions, and also provides that a decision by the Commission on an individual exemption is subject to review by the Court of First Instance.

Article 19 deals with whether the Commission should hear the parties and third persons. Although the Commission is not a judicial body, article 19(1) provides that, before it takes decisions on various matters, including whether