Star Pubs fined £2m over repeated pub code breaches

Pubs Code Adjudicator Fiona Dickie has fined Star Pubs and Bars £2m for “repeated offences” in breaching the code.

Describing her damning report and penalty as a “game changer”, Dickie accused Star of “systemic corporate failures” in its approach to compliance with the pubs code.

The substantial fine is the first financial penalty since the code and regulator was created in 2016, the PCA having previously been criticised as toothless by pub tenants and campaigners.

The severity of the penalty and harsh wording of her report indicates that the PCA under Dickie, who was promoted from deputy in February 2020, is taking a much tougher line on pubcos than her predecessor Paul Newby, whose past work as a chartered surveyor with Punch and Enterprise led to accusations of a conflict of interest.

Star, which is now considering whether to appeal, said it was “deeply disappointed and frustrated” at the outcome, while describing the penalty as “unwarranted and disproportionate”.

In a summary of the report, Dickie said after completing the two-year investigation – her first under the pubs code – the seriousness of the breaches merited a financial penalty, and was intended to act as a deterrent to others.

In a tacit acknowledgement of previous criticisms of the PCA for a failure to take firm action against pub companies, Dickie said her report demonstrated the regulator “can and will act robustly” to protect the rights of tied tenants.

And in a warning to other non-compliant companies, she said: “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, Dickie said.

This was despite repeated regulatory interventions and clear arbitration rulings from the PCA.

The PCA found the company had committed a total of 12 breaches of the Pubs Code.

During the investigation Dickie found that the company had included a responsibility in the job description of the company’s code compliance officer ‘to ensure the code is interpreted to the commercial benefit of Heineken UK’, a breach the requirement to appoint an officer whose role is to verify compliance.

The PCA described Star as a repeat offender and said the company had been given opportunities to set itself on a compliant path “but intentionally or negligently failed to do so”.

It failed to heed statutory advice, or the PCA’s engagement, and did not engage frankly and transparently with its tenants, the report found.

“Where it did change its approach, the efforts it made to comply were for the most part inadequate and not credible,” Dickie wrote.

The investigation covered the period from 21 July 2016, when the Pubs Code came into effect, until 10 July 2019.

She found multiple breaches by the company relating to stocking obligations, with 96 tenants who requested a free-of-tie option were told that 100% of the keg beer they sold had to be Heineken brands.

This was contrary to the legal requirement that stocking terms should not prohibit a publican selling competitor brands. After several arbitration rulings by the PCA, the company switched to a tiered approach as to the amount of own brands to be stocked and specifying ‘must stock’ brands.

However, this “crude” policy was still not reasonable and compliant in many cases, with no documentary evidence to show how the approach was decided.

Tenants told the PCA that Star’s proposed terms were inappropriate for their pubs, and risked them losing a competitive edge and failing to cater to the customers. 

Dickie said: “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.

She added: “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.”

As well imposing the fine, the PCA ordered Star to make all its free-of-tie tenancies Pubs Code compliant and to ensure future code compliance.

Star has six weeks to explain how it will implement the recommendations.

In response, Star managing director Lawson Mountstevens said there were many aspects of the report that it “fundamentally disagrees with”.

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.

“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.”