Roger Pearson looks at the continuing row over whether brewery tie agreements comply with EC block exemption provisions

A Court of Appeal ruling, in which a publican has failed to set aside an injunction banning him from breaking a tie with a drink supply company, Greenalls Management, has signposted a legal fight with wide implications for brewers and landlords of tied houses.

If Brendan Canavan, landlord of the Golden Lion in Eccles, ultimately succeeds, tied tenants may be able to break their so-called tie obligations and launch backdated claims against their landlords. Individual claims in such cases are unlikely to be huge, but the total amount would be significant.

Canavan v Greenalls, which appeared in the Court of Appeal before Lord Justices Staughton, Millett and Judge, is just the tip of a litigation iceberg expected to result in a hearing at Manchester's Commercial Court early next year.

Up to 200 licensees from the region are locked in legal dispute over the system under which rents on tied premises are kept below market levels in return for a pledge to buy drink supplies from the landlords.

Canavan's recent foray into the Court of Appeal followed a High Court injunction in which he was banned from going outside what Greenalls contend are his tie obligations.

His Appeal Court challenge failed on the basis that Greenalls had no serious issue to be tried and that its application should fail at the outset for reasons of domestic law. But his counsel, European law specialist Beckett Bedford of 5 Fountain Court, Birmingham, says the case will almost certainly result in the UK tie system coming under challenge in the European Court of Justice.

Breweries and other companies operating tie agreements claim that they are entitled to exemption from article 85(1) of the European Treaty, which bans restrictions on competition. Bedford believes this case poses a major question mark over that exemption.

Greenalls, on the other hand, says the case goes a long way towards resolving the long-running argument over whether the traditional tie complies with exemption provisions.

The key issue turns on the terms of individual ties. The Greenalls tie specifies beer types – lager, mild, and others – but relies on its current price list to specify the individual brands to which the tie applies. Greenalls claims the tie, therefore, falls within exemption provisions.

Lord Justice Millett in the lead judgment in the Court of Appeal, where Canavan's challenge was unanimously rejected, was satisfied that the lease complied with exemption provisions, and that the regulation governing those provisions did not require the drinks that were the subject of the tie to be specified by brand or trade mark, but by type.

But Bedford, who represents many other tied tenants in the pending Manchester action, takes heart from the comments of Lord Justice Staughton. While he backed Lord Justice Millett's judgment, he cast what Bedford views as a "significant" shadow over the arguments in favour of exemp tion from the treaty provisions. He said that under the agreement in question Greenalls could unilaterally extend the scope of the tie by adding brands to the current price list. For the reasons given by the ECJ in the case of De Limitis, he could not be convinced that Greenalls' tie came within the EC block exemption. Bedford says this backs his view that the whole question will have to go back to Europe to be resolved.