COURAGE & CO. LIMITED v.CARPENTER


[CHANCERY DIVISION]

[1909 C. 1994.]

1909Dec.15, 16, 17

NEVILLE J.

Landlord and Tenant - Brewer's Lease - Tied House - Lessee's Covenant to buy Malt Liquors from Lessor - Rise in Prices - Breach of Covenant - Fair and reasonable Prices - Current Market Prices - Injunction - Form of Order.

A tenant's covenant in a brewer's lease of a tied house not to sell on the demised premises any malt liquors other than such as shall have been purchased from the landlord imports an implied covenant by the landlord to supply malt liquors of good quality and at fair and reasonable prices.

Such a tenant's covenant was contained in the plaintiffs' lease of one of their tied houses in the London metropolitan area, and the defendant was the assignee of the lease. In June, 1909, in consequence of the increased licence duties proposed in the Finance Bill of that year, the plaintiffs and substantially all the London brewers (except a few small brewers) agreed to raise the price of beers 6s. a barrel to the trade, leaving the trade to recoup themselves by raising the retail price to the public one farthing per half-pint. The increased prices were agreed to by the trade generally, but the defendant refused to pay them and purchased his malt liquors elsewhere at the old prices, In an action by the plaintiffs to restrain the defendant from committing a breach of his covenant:-

Held, that under the circumstances the increased prices were fair and reasonable, and that the plaintiffs were entitled to an injunction.

Form of order in Catt v. Tourle, (1869) L. R. 4 Ch. 654, as stated in Seton on Judgments, 6th ed., vol. i. p. 534, not followed.

Quoere as to the meaning to be attributed to the words "current market prices" in a landlord's covenant in such a lease.

ACTION.

The plaintiffs were the owners of a public-house, known as the Rose of Kent, at Deptford, and by deed dated August 25, 1897, granted a lease of it to the defendant's predecessor in title for forty years from December 25, 1896, at the yearly rent of 60l. , payable quarterly, and subject to the covenants therein contained. By the deed the lessee covenanted for himself and his assigns with the plaintiffs (inter alia) that the lessee, his executors, administrators, or assigns, would throughout the said term, so long as the necessary licences could be obtained for the purpose, use the public-house thereby demised as a licensed victualling house only, and would at all proper times during the said term apply for and endeavour to procure a renewal of the necessary licences for using and keeping the said public house open as and for a public-house and tavern for the sale of beer, wine, and exciseable liquors by retail; and also would not during the said term buy, receive, sell, or dispose of, either directly or indirectly, or permit to be bought, received, sold, or disposed of, either directly or indirectly, in, upon, out of, or about the said premises, or any part thereof, any beer, ale, porter, stout, or any other malt liquors whatever other than such as should have been bona fide purchased by the lessee, his executors, administrators, or assigns, of the plaintiffs or their successors in business.

In December, 1905, this lease of the Rose of Kent was assigned to the defendant for the residue of the term thereby granted, and at the same time he demised the same premises to the plaintiffs for the residue of the said term less one day, and also assigned to them the goodwill of the business carried on by him thereat, together with all the necessary licences, by way of mortgage to secure the repayment with interest of the sum of 3000l. then advanced by them to him; and the mortgage deed contained a covenant by the defendant with the plaintiffs that he would not use or sell, or permit to be used or sold, in or upon the premises demised by the mortgage any ale, beer, porter or stout, or other malt liquors, but such as should be supplied by the plaintiffs.

On June 23, 1909, the principal brewers and brewery companies trading in London, in consequence of the increased licence duties proposed by the Budget, agreed with one another that the price of all malt liquors sold within the Metropolitan Police area by them or any of them should as from July 1, 1909, be raised 6s. a barrel, and that no malt liquors should be sold by any of the said brewers and breweries at any lower price. A few of the small breweries did not join this combine.

On June 24, 1909, the plaintiffs (who owned some 300 houses in the metropolitan area) sent a circular notice as well to the tenants of its tied houses (including the defendant) as to its free customers informing them that the new financial burdens which were to be imposed upon them by the Budget were such that they could no longer continue to supply beers on the terms that had existed hitherto, and that on and after July 1, 1909, their prices would be increased by 6s. a barrel. The defendant refused to pay the increased prices and commenced to purchase malt liquors at the old prices from a brewery that had not joined the combine. Thereupon the plaintiffs commenced this action in July, 1909, and claimed an injunction to restrain the defendant from buying malt liquors other than such as should have been purchased from themselves in accordance with the said covenants to that effect in the lease and mortgage.

The defendant alleged by his defence that it was an implied term of the said covenants in the lease and mortgage that the plaintiffs should supply him with malt liquors at a fair price and without making an unreasonable profit; that by raising his prices the plaintiffs were endeavouring to cast upon him the burden of completely bearing the extra licence duties proposed to be imposed by the Finance Bill, 1909; that if the Bill passed the plaintiff would be precluded by clause 32 of the Bill from charging him with the increased prices; that the increased prices were out of all proportion to the new financial burdens referred to in the plaintiffs' letter; that the increased prices were unfair, oppressive, and in excess of the prices charged in the general course of the trade, and that by charging such prices the plaintiffs made an unreasonable profit; that the result of payment by him of the increased prices would compel him to increase his retail prices, and he would thereby lose all or most of his old customers, who would refuse to pay an increased price for their malt liquors and would obtain them from other public-houses in his neighbourhood at the old prices; and that under the circumstances he was released from the obligations of the said covenants in the lease and mortgage.

The action now came on for trial.

The evidence given on behalf of the plaintiffs by Mr. Cecil Lubbock, the managing director of Whitbread & Co. (who owned 600 tied houses in the metropolitan area), and by Mr. Harding, the plaintiffs' manager, was to this effect. There were now some 6450 licensed premises in the metropolitan area, of which over 90 per cent. were tied houses In 1880 the malt tax was repealed and a duty on beer of 6s. 3d. a barrel was imposed. This duty had been increased from time to time, and at the commencement of 1909 stood at about 8s. 3d. a barrel, and these duties had as a rule been paid by the brewers without raising the price of beers to the trade. But the great increase in licence duties proposed in the Budget and in the Finance Bill of 1909 would, if imposed, exceed the sum divided in the preceding year by London brewery companies among their ordinary shareholders. The London companies therefore, in order to protect their shareholders and to recoup themselves the increased duties they would have to pay if the Finance Bill were passed, held meetings and appointed a committee to consider the question of a rise in the price of beers to meet the increased duties proposed by the Bill. This committee devised the scheme of raising the price of beers 6s. a barrel to the trade, who should recoup themselves by raising the retail prices to the public by one farthing the half-pint; and this retail price would amount to 12s. a barrel and would be equally divided between the brewers and the trade. This increased price of 6s. a barrel was directed solely to protect the shareholders of the brewery companies and did not give an increased profit to the companies. It was calculated so as to recoup the brewers the increased duties they would have to pay and to cover the loss in profits (which happened) that would ensue owing to the decrease in trade that would result from the increased prices charged to the public. The scheme was agreed to by all the London brewers, with the exception of a few small brewers, and was assented to by the trade generally, and the rise in prices took effect as from July 1. The defendant was the only tenant of the plaintiffs who refused to pay the increased prices. Another of their tenants did object, but he paid. In the following November, after Lord Lansdowne gave notice of his resolution with regard to the Finance Bill, the brewery companies lowered their prices to the trade to the old rates.

Jenkins, K.C. , and Sheldon, for the plaintiffs. The real issue is whether the plaintiffs are willing to fulfil their obligation to supply beers of good quality and at fair and reasonable prices. There is no dispute as to the quality, and there was no dispute as to prices until the Budget was introduced. The defendant's covenant to purchase beers only of the plaintiffs is not void for want of mutuality because the plaintiffs do not expressly covenant to provide beers, and the Court will interfere by injunction to restrain the defendant from acting in contravention of his covenant: Catt v. Tourle. The form of the injunction in that case is given in Seton on Judgments, 6th ed., vol. i. p. 534.

[NEVILLE J. I do not think that the form of the order there applies to this case. I do not understand how the words "at market or fair and reasonable prices" got into the order. They do not occur anywhere in the report of the case. It seems to me that all I have to consider here is whether the prices charged were fair and reasonable.]

We rely on an unreported case of Noakes & Co., Ld. v. Day. There the tenant's covenant was the same as in the present case, and the plaintiffs raised the price of beer 1s. a barrel, which was the amount of the Boer war tax, and the Court of Appeal held that the increased price was fair and reasonable. The case was argued on the footing that there was an implied covenant by the plaintiffs to supply beer of good quality and at fair and reasonable prices, and we are content to argue the present case on the same footing. In Arnold Perrett & Co., Ld. v. Radford the tenant covenanted to buy malt liquors from the landlord at "fair current market prices," and Wright J. held that those words meant a price that was fair and current in the case of tied houses, and that the price did not cease to be fair and current because the tenants of free houses who were exceptionally circumstanced obtained lower prices by special bargain. Here over 90 per cent. of the licensed houses in London are tied houses and the market is the tied house market, and on the plaintiffs' evidence the increase of 6s. a barrel was fair and reasonable.

Hemmerde, K.C. , and Cozens-Hardy , for the defendant. We rely on the judgment of Wright J. in Arnold Perrett & Co., Ld. v. Radford(3) , where he says "the landlord would not establish his case merely by shewing that his charges were the same as those of other brewers, if it appeared that the brewers generally were maintaining an excessive scale of prices." Here the prices charged were unreasonable and in excess of those charged in the reasonable course of trade, and left the defendant no fair margin of profit because he could not raise the retail price to the public in consequence of the competition in his neighbourhood. Noakes & Co., Ld. v. Day is distinguishable. It only decides that it was not unreasonable to add a war tax of 1s. to the price. But that is not this case at all. Here it is unreasonable for the brewers to put an increased price of 6s. on their tenants in anticipation of a tax that has not become law. Moreover, the Legislature in the Finance Bill is not attacking the manufacturers of beer, but the monopoly value of the tied houses. It is that monopoly value that the brewers are seeking to throw on the public, and clause 32 of the Finance Bill is directed to prevent that being done. It is wrong for the brewers to throw a burden, intended by the Legislature for themselves, upon their tenants and the public and to call it a fair and reasonable price. Such a charge was never in contemplation of the parties when the lease was made. It is also an excessive scale of prices, because it is in excess of those charged in the ordinary course of the trade and which could be obtained from the brewers who did not join the combine.

No reply was called for.

NEVILLE J. I think the only question that I have to decide here is whether the plaintiffs have fulfilled the obligation upon their part so as to enable them to insist upon the defendant fulfilling the covenant entered into by him to take all his beers from them. That resolves itself into the question of whether the additional prices demanded from the defendant were reasonable prices. Some point was made as to whether the plaintiffs had not put it out of their power to supply beers to the defendant except on terms which they were not justified in imposing. I think that the evidence does not amount to that. Although Mr. Harding spoke of not being in a position to supply beer except on the terms of the tenants raising the prices, he referred to the agreement between the brewers, with which, of course, the defendant has nothing to do, and he treated it as a matter of honour. And, further than that, as a matter of fact, beer has been supplied without any conditions being insisted on of that kind. So that I think what I have to see is whether the prices were reasonable. It seems to me that I cannot hold that the prices adopted practically by the whole of the London brewers, and assented to by practically the whole of the licensed victuallers trading in London, are unreasonable prices. There is no doubt that a heavy increase to the burdens upon the trade was anticipated under the Budget, and I do not think that the trade could be accused of acting hastily because they acted upon the assumption that the Finance Bill brought in by the Government would become law in the course of the current year. It was with a view to those increased burdens that the increase of price was made.