The first investigation by the office of the pubs code adjudicator (PCA) began in July 2019 after Star Pubs & Bars were suspected of breaching the pubs code by offering unreasonable stocking terms to tenants seeking to go free-of-tie.
The industry regulator concluded that the nature and seriousness of the 12 breaches uncovered had “frustrated the principles of the pubs code” and merited a financial penalty, which would act as a deterrent to all regulated pub-owning businesses from future non-compliance.
As well imposing the fine, which is based on the turnover of the whole of Heineken UK, Dickie has also demanded that Star Pubs & Bars make all its free-of-tie tenancies code compliant and to ensure future code compliance.
"This penalty is unwarranted and disproportionate and comes at a time when the entire sector is in serious financial crisis as we work around the clock to support our pubs and licensees to keep their businesses afloat"
– Lawson Mountstevens, Star Pubs & Bars MD
Consequently, every free-of-tie tenancy agreed by Star must be audited and tenants with non-compliant stocking requirements are to be assured that they will be made compliant or will not be enforced.
All changes must be paid for by Star, which is said to be considering an appeal.
Dickie has given the company six weeks to provide a detailed response on how it will implement her recommendations and has ordered the operator of around 2,500 pubs to write to all its tenants explaining her findings.
Discussing her office’s first investigation, Dickie – who took over from Paul Newby in May 2020 – described its conclusion as a “game changer”.
“It demonstrates that the regulator can and will act robustly to protect the rights that Parliament has given to tied tenants,” she said.
“I will be holding discussions with all the companies I regulate following my findings about how they will ensure they are code compliant.
“My message is that if anyone previously had any doubts about my resolution to act when I find breaches, they can have no doubt now.”
“Star – which operates the pub estate business of Heineken in the UK – had persisted in forcing its tenants to sell unreasonable levels of Heineken beers and ciders when they requested to go free-of-tie.
“This was despite repeated regulatory interventions and clear arbitration rulings from the PCA.”
Did not engage
As well as identifying that Star Pubs & Bars had offered stocking terms that had acted as a deterrent to tenants pursuing a free-of-tie tenancy, the PCA also highlighted what it described as systemic corporate failures in its approach to compliance.
Specifically, Dickie found that Star had included a responsibility in its job description of the company’s code compliance officer “to ensure the code is interpreted to the commercial benefit of Heineken UK”, which breached the code requirement to appoint a compliance officer whose role is to verify compliance.
“It failed to heed statutory advice, the PCA’s regulatory engagement and learnings from arbitration awards,” Dickie continued. “It did not engage frankly and transparently with its tenants or meet the standards required of a regulated business when engaging with the PCA.
“Where it did change its approach, the efforts it made to comply were for the most part inadequate and not credible.”
Mindset must change
Dickie added that her office’s “thorough and detailed investigation” concluded that Star used unreasonable and non-compliant stocking obligations in its proposed free-of-tie tenancies over a significant period.
“Despite meetings with me and findings I made in arbitrations, Star did not act in a timely, consistent or transparent way to correct what it was aware – or ought to have been aware – were instances of non-compliance,” she continued. “Supporting what Star’s evidence identified, tenants told me that they felt pressured by the company into settling on unfavourable terms or that they simply abandoned their free-of-tie right altogether.
“The evidence I reviewed led me to conclude that Star's policies and patterns of conduct served as structural barriers to tenants going free of tie.
“Protracted negotiations over unreasonable stocking terms would present a deterrent to tied tenants from effectively exercising their right under the Pubs Code to go free of tie. The freedom to access these rights and for tenants to do the best for their business is now more important than ever given the uncertainty the pandemic has brought to the industry.”
“I am also aware that some of Star's free-of-tie tenants are already subject to terms that I do not consider compliant with the code. This has resulted in unreasonable terms ending up in the market.
“The company must change its mindset and become proactive in its approach to compliance. I have decided this can best be achieved by the imposition of a sanction that will serve as a deterrent to future non-compliant conduct by Star and other pub-owning businesses.”
Star Pubs & Bars’ managing director Lawson Mountstevens stated that the operator was “deeply disappointed and frustrated” at the outcome of the PCA’s investigation and was weighing up its response.
“There are many aspects of the report that we fundamentally disagree with and we are actively considering an appeal,” he said. “This penalty is unwarranted and disproportionate and comes at a time when the entire sector is in serious financial crisis as we work around the clock to support our pubs and licensees to keep their businesses afloat.
“We are a responsible business that takes its regulatory obligations extremely seriously and strives to achieve the highest levels of professionalism.
“From the outset we have been transparent and repeatedly sought guidance from the regulator on the terms we were offering those licensees looking to take up the market rent only option, but the PCA consistently declined to respond to those requests. Instead it chose to launch a long, costly and unnecessary investigation.
“We are dedicated to the pubs code in both word and spirit, and do not believe the outcome of this investigation accurately reflects the culture of our business or the good working relationship we have with the vast majority of our licensees,” Mountstevens continued.
“In our view there are flaws in the way the statutory framework is applied, and we call on the Government to examine this as part of their statutory review.”