MRO and the “PUBS CODE ADJUDICATOR”?????

By | November 25, 2017

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MRO and the “PUBS CODE ADJUDICATOR”?????

PUBS CODE ADJUDICATOR

This has been a litany of bureaucracy, frustration and, at times, mind-numbing procedural delays. It would seem that even the Business, Energy & Industrial Strategy Committee has now lost patience with Paul Newby, the Pubs Code Adjudicator. The Clerk to the BEISSC, Chris Shaw, has confirmed that the letter from Rachel Reeves MP, Chair of the BEISSC, has written to Paul Newby on 10th October and that that letter has been openly published on the BEISSC website which can be found at:-

http://www.parliament.uk/documents/commons-committees/business-energy-and-industrial-stratagy/correspondence/correspondence-from-the-chair-to-paul-newby-office-of-the-pubs-code-adjudicator-16-october-2017.pdf

To quote from the third and fourth paragraphs of that published letter:-

“…in particular, how many tenants have obtained new MRO Agreements; how many tenants have been through the entire MRO process and obtained an independently assessed rent? How many Arbitration decisions have you made and how many applications are awaiting decision, and what steps have you taken to ensure timely decisions are taken?

What assessments have you made about the workings of the Code and its enforcement following the verification exercise you commissioned which reported in August? What representations have you made to the Ministers on the effectiveness of the Code and the way that the MRO process is being followed by pub-owning companies and tenants? It would be helpful to have a response by 26 October.”

From our viewpoint, cases that started off in September 2016 and all subsequent cases, almost all of which represented precisely the same thing, namely the validity of MRO only being granted under the terms of a five year lease, set against either a free-of-tie release letter or Deed of Variation have not received one single Arbitration Award which establishes that principle. It is absolutely scandalous that over a year has now passed with absolutely nothing on this core issue for which there are countless applications. We are still continuing to file such applications on a regular basis knowing that, at some stage, surely an Arbitration Award must be issued to ratify the principle concerned. The domino effect could be dramatic ..BUT…

Should the decision go against the Pubcos and Brewers affected by the legislation, we have heard said many times that certainly two of the Pubcos would then instigate an appeal “to the highest Courts in the land”. We all know that the senior judicial system moves exceeding slow in the consideration of such a situation. Much is at stake, specifically because if the decision is upheld it would favour either a Deed of Variation or Tie Release letter and, in so doing, would then achieve the underlining will of Parliament that was to make the consideration of the MRO Option a relatively straightforward affair. That would then be the thin edge of the wedge for companies wholly dependent upon a massive slice of income from wholesale contribution.

Yes, it may take years but if the route to MRO is made relatively straightforward, suddenly there would be a “King’s New Clothes” moment of recognition and the penny will drop that servicing massive toxic loans might not be the easiest thing in the world if there is a dramatic and continuing reduction in wholesale contribution or what is sometimes known as the wet rent if tied publicans can find a straightforward avenue for MRO.

YET ANOTHER ROUTE OF APPEAL AND DELAY

An emerging unforeseen black hole in the Pubs Code legislation is that of the rental determination by the Independent Assessor. If you look back at other methods of Third Party Referral – RICS Arbitration, RICS Independent Experts or the Independent Expert appointed under the PIRRS system, – the Determination as it is called (not an award) is absolutely final and binding on both parties. The PIRRS Third Party Referral requires a distinct and separate Deed of Variation which confirms the binding nature of the outcome. So far all fairly simple and straightforward.

However, under the Pubs Code the Independent Assessor Determination surprisingly is not binding on both parties. This has resulted in quite a large number of immediate appeals by the Pubcos against the rent that has been decided, fundamentally because they don’t like the answer. Referrals have been made to the PCA (which is perfectly legal) under Regulation 38(4)(a) and, just to remind you, the associated wording is as follows.

MRO procedure where a referral is made to the Adjudicator in connection with the Independent Assessor…..(4) where the pub owning business or the tied pub tenant considers that – (a) the rent determined is not the market rent.

So if you don’t like the rent for the basic reason that it isn’t high enough (landlord) or it isn’t low enough (tenant), you can refer the whole affair to the Arbitrator, Paul Newby. Further delay and on and on….

There is, however, one very big problem which we have highlighted in a recent case to the PCA which goes something like this.

The Complainant is saying that they don’t like the rent conclusion. What they are saying is that the Independent Assessor (IA) has got it wrong. However, the Independent Assessor who has to issue a detailed written Determination and associated reasons has been acting as an Independent Expert. Those investigations and associated reasons are not constrained by the Arbitration Act and are certainly not constrained only within the bounds of the evidence presented. It is not the evidence presented that is being questioned, it is the interpretation of that evidence that has resulted in a rent that one of the parties does not like. If he asks for an expansion of reasons/evidence linked to the case presented to the Independent Assessor, more problems. That would be NEW evidence not considered by the Independent Assessor.

Now we have the big problem! Paul Newby is an Arbitrator, not an Independent Expert. For him to delve into the thinking process of the Independent Assessor he would have to take on the mind-set of an Independent Expert. This he cannot do acting as an Arbitrator under the constraints of the Arbitration Act 1996. Having posed the problem to the PCA, we are still awaiting an answer.

All the best from the Team at M & C

Email: nigel@morganandclarke.co.uk

Phone: 01285 719292 and 01285 760370

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