Business, Innovation and Skills Committee
Oral evidence: Pubs Code Adjudicator, HC 601
Tuesday 19 July 2016
Ordered by the House of Commons to be published on 21 July 2016.
Members present: Mr Iain Wright (Chair); Paul Blomfield; Richard Fuller; Peter Kyle; Amanda Milling; Jonathan Reynolds; Amanda Solloway; Kelly Tolhurst; Craig Tracey; Chris White.
Questions 79 - 148
Witnesses
I: Dave Mountford, Pubs Advisory Service and Landlord, Gary Mason, Tied Tenant, and Simon Clarke, Tied Tenant and Royal Institute of Surveyors Surveyor.
II: Stuart Gallyot, Company Secretary and Director of Legal and Estates, Punch Taverns, and Simon Townsend, Chief Executive Officer, Enterprise Inns.
Witnesses: Dave Mountford, Gary Mason, and Simon Clarke.
Q79 Chair: Good afternoon. Thank you for attending. For the purposes of the record, could you give us your name and who you are representing, starting with you, if I may, Mr Mason?
Gary Mason: I am Gary Mason, from the Millwright Arms in Warwick. I am a tied tenant and five years into a 10-year lease review with Punch.
Dave Mountford: My name is Dave Mountford. I represent the Pubs Advisory Service. I was with Punch Taverns as a tied tenant for five years and I now run a free-of-tie operation.
Simon Clarke: My name is Simon Clarke. I am a chartered surveyor and a tied tenant. I have given evidence to a number of Select Committees before, and I am Secretary of the British Pub Confederation and a member of Fair Pint.
Q80 Chair: Mr Clarke, I am going to start with you, because you said you had given evidence to Select Committees before. We and various reiterations of this departmental Select Committee have taken an interest in the issue quite closely and have helped to try to shape legislation. Could you give us a bit of background? I would like everybody on the panel to do this, if you would. What is the background to the development of the Pubs Code? Why did self-regulation fail?
Simon Clarke: It started a bit before self-regulation, I suppose. My first Committee appearance was in about 2009. That was a result of getting involved with the Fair Pint campaign. It was just seen as trying to achieve a fair playing field for tied tenants, who, on the whole, were feeling that their profitability was not being shared properly in the pubs. The Committee at that time did a study and established that 67% of all tied tenants were on less than £15,000. The aim of regulation—I include self-regulation and statutory regulation—in our book was to rebalance the risk and reward so that the tenant was achieving a better level of profitability. Self-regulation came in but never had at its heart the rebalance of risk and reward, even though it did cover what we consider to be more peripheral issues.
The key issue, which was always the elephant in the room, was trying to get the profitability of the tenant up while a large slab of the profitability of any pub was going to the pub company or the brewers—whoever happened to own it. That is why I would suggest self-regulation struggled and was seen, in the end, not to have worked. Therefore, we welcomed statutory regulation coming in. The vote back in November 2014, I think, for a market-rent-only option was a key part of it. If the tenant felt they were still suffering, they could choose at some point in time to go free of tie.
Q81 Chair: Thank you. That is very helpful. Have you anything to add, Mr Mountford?
Dave Mountford: I would reiterate what Simon said. I have been involved in this since 2008. I gave evidence to the 2009 inquiry, and I worked quite closely with Toby Perkins, who resurrected the issue in 2012. The focus was to provide and make sure there was the available information out there for tied tenants so they could make an informed choice, with the drive towards getting a free-of-tie offer available to them. Thankfully, that is where we are. My opinion is self-regulation has never existed, and I think I have stated that in the past. One of the major reasons self-regulation failed, which is relevant today, is the numerous conflicts of interest within the pubs industry.
Q82 Chair: Thank you. Do you have anything to add, Mr Mason?
Gary Mason: I have had nothing to do with this, sorry. I know nothing about this.
Chair: Okay. Thank you. That is very helpful in opening it up.
Q83 Jonathan Reynolds: Thank you, guys, for coming along today. You have all mentioned you have had a long-standing involvement in this, and many parliamentarians and campaigners have had that. Certainly, this Committee has spent quite a bit of time on these issues. Given the concerns around tied tenancies that have been around for quite a long time, why are people still tempted to take them up? Are there benefits to that arrangement we need to consider, as well as the downsides?
Dave Mountford: I personally do not know the benefit. A lot of it is to do with ignorance. The selling point is it is a low-cost entry into the market. I believe that is an attraction for people. A lot of tenants are described as lifestyle applicants: they think it is great idea to go and run a pub. I feel that is not disabused by the pub companies to a certain degree. If offers an opportunity for people to go in on a very short-term agreement, a short-term option, and eventually lose a considerable amount of money.
Simon Clarke: I am inclined to go along with what Dave said there, in many respects. The reason people look at going into a tied pub has been partly to do with a possible lack of sufficient information for them to make a decent decision and their lack of experience. Naivety has definitely played its part. That is not altogether anybody’s fault. People not getting the necessary professional advice has been a problem in the past, because they see not going to an accountant, stocktaker, solicitor, lawyer, surveyor or whatever as saving a bit of money.
Also, one of the problems is that any pub has a greater value to a pub company or brewer that is able to operate the tied model than an individual taking that pub on, be they a landlord who is going to get a tenant to run that pub free of tie, or be they an owner-occupier. That is simply because they can eke out a greater level of profitability because of the tied model where, as you know, from past experience in some cases tied beer is almost twice as much as it is on the free market. There is quite a shortage of free-of-tie pubs, simply because they are always outbid.
Q84 Jonathan Reynolds: Do you all believe the Pubs Code provides a framework that can protect tenants?
Simon Clarke: It is a great platform. We recognise that there are faults within it. I do not doubt for a minute the pub companies and brewers will consider that there are faults within it in their view. I suspect they have differing opinions. That is one of the reasons we wanted to see this come in as soon as we could, because that is always going to be a quandary for Government. They have sought to strike a balance: we would say it is not strong enough; pub companies would say it is too strong. It needs to be put into practice and experienced in order to consider whether it needs changing. There is a review pattern that is roughly two years from when it was supposed to be implemented—in May. In two years’ time, we will have had the benefit of experience of the code and can re-look at it then.
Dave Mountford: Just to reiterate, we are very pleased with the code, overall—not particularly the way it has been put together or how we have got to where we are, but we have got there in the end and we are pleased with the final result. If applied correctly, it will do what the Government set out to do.
Gary Mason: I have no comment on that, sorry.
Q85 Jonathan Reynolds: Could you say a bit about what the delay in implementing the code has meant for tenants so far?
Dave Mountford: This is probably where Gary can really step in, because it has had a direct impact on Gary. Many tenants have missed out on the opportunity to take the market-rent-only option because of the delay. Obviously, the code was due to go live on the 26th; it is now very close to going live. That will happen today or tomorrow—we are not quite sure—hopefully. There are a great many tenants who will, because the code is not being made retrospective, not be able to take that option. We cannot stand here and say exactly how much money that may be, but we are confident that if applied correctly it could be a vast amount of money over a five-year period for a tenant.
Q86 Jonathan Reynolds: Does anyone else wish to answer?
Simon Clarke: Our greatest regret is we were clamouring for a draft copy of the code back in the summer of last year. We did not see one in any shape or form until November. We were trying to get the consultation process under way, knowing perfectly well it would all become a bit of a rush at the end. We may end up with a delay, which we know would be difficult for a lot of tenants.
The fact that the code was pulled is of concern to a lot of people. We were initially told it was pulled for a flaw—a typo, really—that would deny the market-rent-only option to some of the tied tenants that might not be protected tenants under the Landlord and Tenant Act provisions. In fact, we had a lawyer look at that the next day. They said it was not tidy, but it would do. There is an argument that it did not need to be pulled at all. Having said that, once it was pulled there were 900-odd amendments, a lot of which were typos and moving things around. The end code is probably less open to dispute than the previous one would have been. It is a shame: had we started the consultation process earlier, it might not have been the case that we got a delay.
Q87 Chris White: Can I register an interest in Millwright Arms? I have had a drink at that hostelry; I have also met with the landlady and the two gentlemen in my surgery. Mr Mason, as you have come down, I think it is fair to say some personal things on how is it working with you individually. What impact is the current situation having on your business?
Gary Mason: Punch came and gave us a review on our rent. They want to put our rent up roughly 40%. We cannot afford that. We got Simon Cable from Fleurets out. He was supposed to go over the rent review stuff with us and also what our lease would be worth if we sold it. He never came back. We rang four or five times and the chap never came back to us. We could not pay it. We would try to sell the lease but we could not, because the chap never came back and gave us any figures on our lease.
The knock-on effect of that would be that if we stayed we would have to get rid of staff or make some money by selling our lease. At no stage did anybody mention this MRO. Punch never told us when they came out. Punch came out and had meetings with us; they never mentioned this MRO. Then Fleurets came out; they never mentioned MRO. We just seem to be earning £1 and they want 50p of it all the time. We are working our socks off for no benefit.
Q88 Chris White: Why do you think they wanted to increase your rent?
Gary Mason: Because we are doing well. We are doing okay. It is easy for them to take some more money off me. We are just a cash cow. That’s how I feel.
Q89 Chris White: I am going to ask Dave to come into this conversation in a minute. Do you think they have a good relationship with you? Do they give you good advice or training? What do you get out of it?
Gary Mason: They seem to think so. Because we are quite good operators, we have hardly had any contact with them. Jackie comes round once every three months. We go on and do our job. We do okay. We only seem to see these people when they want extra money out of us.
Q90 Chris White: Thank you. Dave, can you come in?
Dave Mountford: When we discovered Gary’s case, we contacted Fleurets at the Birmingham office, because we recognised the significance of this particular story. We, the Pubs Advisory Service, wrote to Fleurets and we said, “Why did Mr Cable not give Gary the advice that he needed? Why did he not advise or tell him about MRO or come back to him, and why did he ignore every attempt?” We were aware that Fleurets at that time, in November 2014, was a small four-man team. It was headed up by Mr Newby. He was the director of Fleurets at that time. We received a response from the current director of Fleurets, a gentleman called David Sutcliffe, and he could have said a number of things: he could have said Mr Cable was ill, he had disappeared, he had resigned or he had gone—he could have said anything.
What he, in fact, said was that Mr Cable was not instructed, which was not true. He said that Fleurets were not aware of the draft code until April 2016. The draft code was released in October 2015, three or four weeks before the inspection. He said that they did not really understand or appreciate the significance of MRO. Unfortunately, we discovered very quickly that Mr Sutcliffe had in his previous position, three or four weeks before the inspection at the Millwright Arms, produced a document for Fleurets as part of their quarterly magazine. That told everybody what was going on in the business and made substantial reference to MRO as being one of the most important things going in the industry. That was the significance of Gary’s story, which we felt should be put in front of someone. We have had the opportunity to do that today in front of the Committee.
Q91 Chris White: Since we met in my surgery, I have had correspondence with Punch on some of these issues. Have they demonstrated a change of heart, responded or communicated?
Dave Mountford: To be fair to Punch—and I am being extremely fair to Punch—we asked Punch to put all negotiations on hold until the code came in, because there was still the possibility that the code might become retrospective and, therefore, might help Gary. The Minister, Anna Soubry, said two weeks ago that was not going to be the case. We do not know whether there is going to be a big change of heart, but we can hope. To be fair to Punch, everything has been put on hold on our request and they have agreed to that.
Q92 Paul Blomfield: I want to ask Dave about the way in which the delay might have impacted in terms of denying people the opportunity for MRO options and whether you have picked up any cases. I am aware of one in my constituency where pubcos have sought to trigger variations in conditions that would then deny people the opportunity to have the MRO option that they might otherwise be entitled to in due course. Are you aware of that?
Dave Mountford: Yes, we have seen many cases of what we would describe as gaming of the code. To give you an example, under the Landlord and Tenant Act it is perfectly legitimate to give notice at the end of a lease that the pub company intends to take the pub back for their own use, which is happening quite frequently. It is becoming very popular, because it is a great opportunity to avoid the legislation. We are finding that mechanism is on either party—what is called a Section 25 notice. The pub company will issue a Section 25 notice, which says, “Dear Mr Whatever, your agreement is coming to an end. Under these circumstances, we intend to take it back as a managed operation.” If it is a lease, there is compensation, and that is very clear. That compensation is spelt out. That compensation is nowhere near perhaps the value of a 20-year renewable lease, I might add.
At the same time that the Section 25 notice is going out, the pub companies are issuing letters that basically say, “You can keep it for five years on a five-year agreement if you want.” Of course, the five-year agreement negates the MRO and restricts it. That is something we are seeing quite consistently. I can think of five or six cases of that within the Pubs Advisory Service. Does that answer your question, Mr Blomfield?
Paul Blomfield: It does.
Gary Mason: We were offered one of those.
Dave Mountford: Gary was offered a similar sort of situation.
Q93 Paul Blomfield: That does not suggest that the Pubs Code is necessarily recalibrating the relationship in terms of building good faith?
Dave Mountford: No, absolutely not. Since November, we can say the movement has been to that sort of activity. Everybody is talking about managed houses now. Punch have already gone down that road a few years ago. They obviously clearly believe that is the way to go. The MRO amendment was written to encourage competition, something we do not believe exists in the industry. We—Simon and I—have frequently gone on record and said that we do not care necessarily if someone wants to take the MRO amendment or not. We want them to have the informed choice, and we believe that if the pub company is doing what they have said they have been doing for the last 20 years—offering an extremely attractive package that is beneficial—that option should not necessitate the sort of activity that is going on. Everybody would want to stay tied. That is where we have come at this from. Unfortunately, we do not believe that opportunity has been grasped.
Simon Clarke: If I may tag on the end there, you must remember under the Landlord and Tenant Act—and there are variations upon this theme—if you have a lease over 15 years you are entitled to renew as a tenant for 15 years. There are then objections available to the landlord—seven of them, in fact—where they could seek to object to your renewal, for example if you do not pay your rent or have let the place fall down. One of them, however, is that they will take it back for their own management. To take it back for their own management, for most companies a managed pub would need to be seeing at least £8,000 a week turnover. The average pub within the estates does not do that, but it is a great threat to be putting over any tenant: “Listen, we are going to take it back to manage, unless you agree a five-year term even though you are entitled to 15, potentially.” That is the kind of thing that seems to be spreading out.
Dave Mountford: It is that sort of scenario that we would be looking for the adjudicator to make a ruling on.
Q94 Paul Blomfield: These sorts of cases are going to be a real test of the adjudicator’s process.
Dave Mountford: Impartiality.
Paul Blomfield: And impartiality.
Q95 Chair: That brings us on quite nicely to a line of questioning that I would like to pursue. The new regime has, as one of its key features, a new Pubs Code Adjudicator. David, I will start with you, but I would like your views as well, Gary and Simon. In theory, what do you want that Pubs Code Adjudicator to be able to do?
Dave Mountford: The Pubs Code Adjudicator needs to be fair and impartial, and the decisions that he makes need to be based on our common law of justice and fairness such that they can then be applied to similar cases, so the precedent is set. To sum up, that is where I would be looking overall.
Simon Clarke: I would agree we are looking at impartiality and independence but, equally, we are looking for a situation where there are hopefully no conflicts of interest—certainly none of any significance—and therefore absolutely no perception of bias on the part of the adjudicator. It is interesting Mr White mentioning that he had a declared interest. I know that Committee members here, if they have any kind of interest, are expected to declare it to the Committee, and if it is considered a significant interest, they would step down from participating in a particular inquiry. We have a situation here with an adjudicator who has acted for all six of the companies that he is now expected to regulate and also still has shares in a company—12% shares in Fleurets—that, to the best of our knowledge, derives, from your last inquiry, about a quarter of its income from those pub companies.
Q96 Chair: Let me come on to that in a moment, if I may, Simon. Gary, have you anything to add in terms of, in theory, what you would like the adjudicator to be doing?
Gary Mason: I would like us all to be dealt with fairly. At the moment, it all seems to be one way. I am quite happy to sign a fair deal; at the moment, the deal is not fair.
Q97 Chair: I am very interested in some of the phrases you have used, gentlemen, in terms of what you want, in theory, the adjudicator to be doing: impartiality, no conflicts of interests, no perception of bias. Starting with you, Dave, in terms of what we want in theory and what we have in reality, how far away are we from what you would like?
Dave Mountford: We have already gone down this road once, in self-regulation. In 2009, your Committee recommended there should be statutory legislation in a free-of-tie offer. In 2010, the Government ignored that and made recommendations there should be an independent process of resolving issues. It was called the Pubs Independent Conciliation and Arbitration Service. The industry appointed a surveyor in the role, despite knowing the surveyor was very close to the pub companies and had worked for them on many occasions. The PICA-Service arguably failed as a result of that appointment. The history is already there and we appear to be revisiting that.
I do not see how, in any way, shape or form, Mr Newby can be seen to be impartial. He has derived a considerable amount of income in the past from the pub companies. I know Simon will go into more detail on that, should you wish. The Minister, Anna Soubry, keeps making the same point—I do not mean to pick on her, because she is not here right now—that she was a barrister. She said very recently that in the past she had to represent paedophiles. She did not like it but she did it. Mr Newby is not a barrister. Mr Newby is not going to be representing these companies; he is the judge. I know of no historical precedent in law in which a judge has overseen a dispute in which he was paid by one of the individuals in that dispute in a previous existence.
Simon Clarke: I would definitely echo that. Will Anna Soubry be a witness now? Probably not.
Q98 Chair: Anna Soubry is no longer a Minister in the Government and we do not know who the Minister with this responsibility is. That the complication we have.
Simon Clarke: I gathered that. It was particularly useful because she had been a barrister. One of the questions I would love to hear her answer is whether she had ever been involved in a case where the judge has presided and one of the parties to the case was a former client. That is the situation we are finding ourselves in here. Mr Newby is effectively judge, jury and executioner of this industry—a single man—unlike a Committee situation like this, where there is a number of individuals who can step out and step in. On the idea that has been put forward that he is a professional so he can put these things to one side, professionals work in such a way that they have guidance on conflicts of interest. Bizarrely, in this situation Mr Newby will be writing his own guidance on conflicts of interest even though we can see he has them, which seems absolutely ludicrous to us. The first question was, how far apart are reality and what we would like? I would say “a million miles”.
Q99 Chair: Is there anything that Mr Newby can do to gain your confidence? Will you give him 12 or 18 months’ grace and say, “Let’s see what rulings he carries out to see if he can be impartial”? Is there anything he can do to gain your confidence?
Dave Mountford: If we can look at this from the perspective of what is happening in the industry, we know pubs have shut down—22 pubs a week are shutting. Since the decision Ed Davey made in 2010, we have lost roughly 8,500 pubs to alternative use. I have spent eight years campaigning. I did not have to wear glasses when I started doing this. We have been involved in this for a long time and we are now here with an excellent code. We are extremely disappointed that we do not have the confidence of somebody to put that code into operation.
I feel Mr Newby should never have applied. I feel it was extremely damaging that he applied. Simon Clarke would never have applied for the position for exactly the same reasons, even though he would have made a great adjudicator. Nobody would have accepted it; of course they would not. We needed somebody from outside the industry. We have always said that. It could not have been a surveyor. We have always said that. We have gone down this road before and it has demonstrably failed.
Q100 Chair: Can I push you on that, Dave?
Dave Mountford: Sure.
Chair: What sort of person should you have had?
Dave Mountford: A judge.
Q101 Chair: You say somebody independent, somebody who is not a surveyor. Did BIS ask your opinion and say, “What sort of person do we need?” What did you say?
Dave Mountford: We said somebody from outside the industry; we said a judge, a retired lawyer or somebody with legal experience. We definitely said it should not be a surveyor.
Simon Clarke: Back in 2010, the RICS wrote in to the Government’s consultation. I am reading this from their conclusion: “Whether or not the adjudicator is a chartered surveyor, he or she will require assistance from other surveyors who are actively involved in the local market. It is likely that many such specialists will have a conflict of interest, having advised one of the parties on a range of matters.” I wrote a submission critiquing that. I may have agreed with the writer on the generality of the RICS paper, but on that one point I said, “It would be catastrophic if the adjudicator was a chartered surveyor.” That was back in December 2013. We have given that warning over and over again to various officials. We have had a constant change of officials and Ministers, so it is something we have had to repeat over and over again. Our basic recommendation was that we had a judge.
The argument has been that a judge cannot agree rents or look at rentals. That is nonsense; they do it all the time on lease renewals. They take advice from surveyors, but the surveyor would be acting for one party or another and they would take a considered opinion. There is no reason why it could not have been a judge. Being a quasi-judicial role, there are a number of things under that umbrella that are going to be required of the adjudicator other than just setting rents.
Q102 Chair: Where do we go from here in terms of making sure that the new regime and the code is complied with and works well for tenants and the whole industry? What do we need to do?
Dave Mountford: One of the things we were discussing this morning is that we understand you are possibly not going to be discussing this with a new Minister until September. That bothers us a great deal. We would prefer that you acted very quickly as a Committee to report back as quickly as possible because, by September, we will be in a situation where we are going to have to start sitting down with Mr Newby. We have a code. We will have numerous cases to take to him. That is not going to be a problem from the point of view that we do not necessarily believe he is the right person for the job, but it gives him a position of credibility that, at this moment in time, we are not particularly comfortable with. We do not want anybody to turn round at a later date and say to us, “You have sat there with him. You have accepted him. You are dealing with him,” because we have had no choice, because we have run out of time. Mr Newby is clearly not going to step down, despite numerous recommendations in Greg Mulholland’s debate only six weeks ago that he should; clearly he is here. We would be looking for the Committee to make some sort of recommendation very quickly to put to bed what we believe to be the obvious conflict of interest, to make sure we are quickly reassured by what is happening.
Q103 Chair: I would like to push you on that, Dave, and get the views and advice from others on the panel. What is it that Mr Newby has to do in order to gain your confidence, if anything?
Dave Mountford: It is an incredibly difficult question, but I will answer it the best I can. Mr Newby cannot win, because if Mr Newby comes back with an answer that satisfies us, it is not going to satisfy these guys sitting behind me. Mr Newby might have gone the other way to satisfy us. We have to see a consistent, reasoned determination on decisions that makes sense. The thing that has been touted, which never entered into any of the discussions, as far as I am aware, up until the middle of last year, is this balance of business. He has said it himself. He must apply the code while still balancing the needs of business—business being the pub companies. That bothers us a great deal, because that never existed. This is all about the objective to achieve no worse off—not “no worse off” but make sure they are still okay. We believe that they have taken an unequal amount of profit for the last 25 years. That is not our fault and that is not our problem. The fact that we are trying to rebalance it is not our fault. But we need to see that it is fair. I cannot answer any better than that, I am sorry.
Simon Clarke: From where I sit, we would rather see him step down and have an adjudicator that everybody is content is impartial. I appreciate that is going to be time-consuming, but just as the code, as the Government said, was better done right and delayed, I would rather see the right adjudicator and a delay if necessary. Once the code is in place, things would be retrospective to the date it came out. Things would be put on hold somewhat, but it is postponed rather than cancelled for tenants.
You do not put a fox in a hen house and then wait and see how it all comes out at the end. It is not like that. There is a perception of bias. There is no avoiding that. There are quite clearly conflicts. To say there are no conflicts is nonsense. The fact is there are conflicts; the question is whether that creates a perception of bias or not. In my mind it does and in the mind of any tenants I have spoken to it does. Once they are aware of the facts, a reasonable third party would think, “Well, yes.”
Dave Mountford: Simon will confirm what I am saying, as he is more of an expert on this than I am. My understanding is that, because of the guidelines on conflict of interest set down by RICS in arbitration, if you had a dispute with your pub company, Mr Wright, and you went to be Mr Newby and you said, “I have this dispute with whoever,” the first thing Mr Newby must say to you is, “I have a conflict of interest, because I have represented this company whenever.” At that point, it is quite within the tenant’s rights to say, “I do not want to be dealing with you; I want to be dealing with somebody who does not have that conflict of interest. It makes his position untenable because anybody can do that and there is only one adjudicator.
Simon Clarke: That is quite right. Every one of the companies that are to be regulated are former clients of him or his company. Strictly speaking, under the RICS guidelines, he would at least be expected to apply for the consent of both parties to continue with the role. In some cases, if it is seen to be what they call a non-waivable conflict, he would be expected not to act. How can he do that if there is nobody else? RICS’ rules of conduct say that members shall avoid conflicts of interest. He has walked right into one, as far as I can see.
Q104 Chair: Gentlemen, that has been very helpful to the Committee. Is there anything else you would like to add while you have us before you, as it were?
Simon Clarke: I would like to touch on something, if I may. Fair Pint has made a complaint to the Public Appointments Commissioner, who came back to us and, whilst understandably defending his staff and the panel that was involved, indicated in his letter, which I am happy to provide to the Committee, that the panel considered Mr Newby’s CV, which mentions Fleurets but only as a current employer. His penultimate paragraph says, “In my view, it would have been better if they had specifically addressed the issue of Mr Newby’s role as a partner at Fleurets, including the background of his previous clients.” It would appear from this that the issue of his shareholding and continued shareholding was not even raised to the appointments committee. There is a question of, on the one hand, sufficient due diligence being undertaken; on the other hand, you can say they asked the question, took his word for it and worked with what they had been given. Either way, there is an awful lot more information that we know now that I suspect was not made known to the panel of appointment. We will be filling them in on our response to that complaint.
Dave Mountford: There has been much made of the fact that Mr Newby has represented tenants in the past. There are three main points to make about that. First, Simon’s case is again a good example: Enterprise Inns are tenants of the Eagle Ale House. They do not own it. They are tenants of it. That could easily be a misleading statement. Furthermore, realistically Mr Newby’s rates when he acted for tenants would be in the region of £300 an hour. The average tenant that the code is designed to support would never have been able to pay Mr Newby’s rates. There is no way I can imagine that could have been the case. The third point is the most valid. The RICS guidelines is quite a detailed and specialised document. I would estimate that probably less than 10% of tenants would know it existed. They would not know how their rents were calculated.
Again, if I use Simon as an example, say your rent was £40,000 a year with Enterprise Inns, and Enterprise Inns came to you and said they wanted to put it up to £45,000. If you then got hold of a surveyor and said, “Can you come and help me?” and that surveyor happened to be Mr Newby and he came along and said, “It is terrible; your rent should be £35,000,” and he then got it down to £35,000, you would probably be very impressed with Mr Newby. You would probably say very positive things about him. However, if you then discovered that your rent, according to the RICS guidelines, should have been £10,000 or £5,000 or even £0, maybe you would not be so impressed. There is this lack of knowledge of what the RICS guidelines say, which were clarified in 2009: they stated quite clearly that the guidelines should state and be applied to mean that the tied tenant is no worse off than the free of tie. To our knowledge, we do not know of one instance where Mr Newby has practiced that.
Simon Clarke: One last thing, I am sorry. You were asking about the issue of conflict. One of our greatest concerns is that Fleurets derive about 25% of their income from the pub companies, I think he said to the Committee, in fairness to him. The directors of Fleurets and their spouses had to lend about £3 million to the company back in 2009. He is a 12% shareholder of a company that owes him potentially something like £250,000 or £300,000. That company relies on the income of the pub companies he is going to be regulating. That is the root of our greatest problem.
Chair: Gentlemen, thank you very much for your time. We are very grateful.
Examination of Witnesses
Witnesses: Stuart Gallyot and Simon Townsend.
Q105 Chair: Gentlemen, thank you very much for attending. Could I ask for your names and the organisation that you are representing?
Simon Townsend: Of course. My name is Simon Townsend. I am the Chief Executive of Enterprise Inns.
Stuart Gallyot: I am Stuart Gallyot from Punch Taverns. I have a number of roles in Punch: Company Secretary, Director of Legal & Estates, and I am now the Code Compliance Officer as part of the regulations.
Q106 Chair: Thank you. We started off with the earlier panel by talking about self-regulation and perhaps why that failed. Can I put the same question to you? Why do you think self-regulation of the pub industry failed?
Simon Townsend: I do not believe self-regulation had failed. It was a process of evolution and it was making significant progress. There were a number of instruments available to tied tenants to seek remedy in the event of a dispute with their landlord company, whether that be the Pubs Independent Rent Review Scheme, which has been used by a number of tied tenants to help resolve disputes over rent at the time of rent review at a low cost, or the Pubs Independent Conciliation and Arbitration Service, which was designed to deal with fundamental disputes of fact between pub companies and tenants. Remedies and available solutions were there within the self-regulatory framework. There was a vast amount of behavioural conditions within the self-regulatory framework, which I believe, again, were evolving. In my view, the evidence is that pub company and tenant relationships appear to be continually improving. At the moment, I would say they are at a significant high. This would appear to demonstrate that the self-regulatory environment was having an effect. I do not believe it failed.
Stuart Gallyot: I agree with Simon’s position. Certainly, from our point of view it was working, it was evolving and we were getting to a point where there was a clear process for publicans to complain and have redress in any situation.
Chair: Thank you for that. I am very conscious of time. I know Paul has Chamber responsibilities. Paul, do you want to ask your question now?
Q107 Paul Blomfield: There is a specific case in my constituency that reflects a wider concern in terms of the relationship between pubcos and tenants, and illuminates some of the issues around good faith and how things will operate. One tenant contacted me. They have a current 10-year lease that finishes on 20 August, at which point they would have been entitled to trigger their MRO. This question is aimed at both of you. They received a letter, which they thought was quite straightforward, that said that they were being released from their tied package cider element of the lease and the rent was increasing slightly. They took that at face value. What the letter did not say was that essentially triggered a lease review and what they described as a convoluted interpretation of the standard lease. When they got in touch with the company, they were told that this was being done in order to evade the opportunity for them to gain their MRO on 20 August, because essentially it was establishing a new relationship before 21 July. Is that good practice?
Simon Townsend: Without knowing the circumstances of the pub that you are referring to in your constituency, I recognise the circumstances you have described. If it relates to my company—I do not know if your particular case does—I do know that we have negotiated hundreds of tied releases or amendments to the tie or partial tie releases. I think it is something over 600 of our pubs where we have applied partial or even full tie releases and there has been some adjustment to the rent.
Some years ago, against the background of the self-regulatory environment you have been describing and some of the concerns raised, we created an agreement that had within it no rent reviews at all for the life of the agreement. That was with the complete agreement of both parties, otherwise the other party would not have entered into that agreement. We recognised during the passage of the legislation that one of the concerns that was being raised was the possibility that some tenants may not have had a rent review for five years. We quite openly instigated a process of initiating open market tied rent reviews in those pubs that had not had a rent review for five years. In doing so, we have used an explicit clause within the lease that enables us to offer a tie release and, in the cases I know we have done, we have simply offered an adjustment to the rent reflecting the change in income that the tenant might expect. It has not triggered an open market rent review. It has triggered a rent review and we have made the offer to the tenant. If the tenant wishes to challenge that offer, of course they may seek complete independent third party referral of that rent in order to determine if it is a rent they believe is appropriate for the pub. I recognise what you have just described, and those will be the circumstances in which we have done that.
Q108 Paul Blomfield: You have done your homework very well. It is Enterprise that have triggered this. The letter that was sent does not match the description you have just given me. It was a letter that was simply releasing them from a tied package cider element of the lease and making a slight rent increase. It did not talk about the wider implications. As it was described to me by the tenant, it seemed like a fairly straightforward variation, but in practice it has denied them the opportunity that they would otherwise have gained after 21 July for a market rent option when their current lease fell to you on 20 August. Is that acceptable practice?
Simon Townsend: Like I say, I am not familiar with the specific circumstances you have described or the dates in which something may or may not become applicable. In seeking to address something that has specifically been raised as a risk to tenants—the idea that they have not enjoyed a rent review, even though the agreement they entered into specifically said there will be no rent reviews for the life of the agreement—we have set about creating an opportunity for a rent review.
Q109 Paul Blomfield: You seem to have created an opportunity for them to be denied an MRO that they would otherwise have gained.
Simon Townsend: No, we have not denied the opportunity of a rent review.
Q110 Paul Blomfield: This does not sound like a great opportunity.
Simon Townsend: When two parties openly go into something that says there will be no rent reviews and we have set out to create a rent review, that is exactly what we have done.
Q111 Paul Blomfield: Do you think an incident like this encourages confidence in the relationship between pubcos and tenants?
Simon Townsend: The relationships that we enjoy with the vast majority of the publicans who occupy our pubs, and on whose success the success of our company depends, are very successful and confident. I accept that we do not get everything right all the time, but we certainly seek to correct things when we have done something incorrectly.
Q112 Paul Blomfield: Would you be willing to correct this one?
Simon Townsend: I believe we are doing the right thing. I believe we are doing the right thing.
Q113 Paul Blomfield: You are doing the right thing by denying them the opportunity to gain the MRO that they would otherwise have had on 20 August.
Simon Townsend: We are doing the right thing by enabling them to have the opportunity of an open market tied rent review, which was one specific element that the legislation highlighted was of concern. We have simply set out to do that.
Q114 Paul Blomfield: The tenant would see it somewhat differently.
Simon Townsend: I would be delighted to receive the specifics of the tenant you have in mind and address that matter in open correspondence.
Q115 Paul Blomfield: I will certainly follow up with you. As I say, it is a specific case but I felt, Chair, that it illuminated some of the wider issues in terms of the relationship. I do apologise but I have to be on the Floor of the House within the next three minutes.
Q116 Jonathan Reynolds: Could I ask each of you what involvement you had in the development of the Pubs Code? It is widely agreed this is a beneficial move for tenants, but did you feel the voice of industry was listened to when that was being drawn up?
Stuart Gallyot: The short answer is possibly not, no. We were consulted along the way but it was all very last minute. As we have already heard from the tenant groups, we wanted, as well, to get involved sooner rather than later. The regulations came out in October, then again in April and then again more recently. The consultation process was fairly clumsy, clunky and there was a lack of communication. We are happy the regulations are coming in. We accept they are coming in. We just want them to work. It is as simple as that. That is the position we wanted to try to achieve, but we were hamstrung in trying to get to the officials to be able to help them to produce these regulations.
Simon Townsend: As you will know from the weight of the regulations that you have seen, they are an enormously complex and comprehensive set of regulations. They have clearly required some considerable time and effort in order to be able to construct them in a way that meets the original intentions of the legislation.
My concerns, undoubtedly, would also be around the manner in which the draft regulations were laid in April, which was only a matter of six weeks before the indicative dates that we had been given. That was a vastly different set of draft regulations to the initial draft that had originally been published before Christmas. The manner in which those changes had been made was of concern. I am sure campaign groups and other stakeholders in this process would have welcomed the opportunity to consult and be consulted on the regulations that were ultimately laid. Perhaps we may have got to a position where they did not have to be withdrawn in order to address the technical issues that were identified.
Q117 Jonathan Reynolds: In an attempt to get a sense of what has been caused by the delayed implementation of the code, is it possible for each of you to tell me, in your businesses, roughly how many rents have been reviewed since May and therefore how many tenants might have missed out on the opportunity for a market-rent-only option?
Simon Townsend: If I can step back for a moment, good estate management, for both landlords and tenants, is to be talking about events, whether it be a lease renewal or a rent review, 12 months in advance and certainly not less than six months in advance. Conversations will have been happening with tied tenants around rent events up to a year ago. I do not have the numbers in front of me but I know we do approximately 500 rent reviews every year across our estate and we do approximately 100 renewal events every year. If you said there were 600 total events across our estate in the year, that would give you a rough idea of how many would happen each month. The bottom line is we will therefore have been concluding discussions with publicans on tied rents during the last few months and weeks, as we will be today and tomorrow. It is just normal estate practice to conduct those events.
Q118 Jonathan Reynolds: You have been very forthcoming and it is quite useful information you have given us. Would you be willing to write to the Committee to tell us that figure?
Simon Townsend: Of course.
Q119 Jonathan Reynolds: Can I ask you as well, Stuart?
Stuart Gallyot: Certainly. I recognise there is a sense of disappointment for tenants between—in theory—26 May and whenever it is due to come in. In nearly all instances, we are keeping the dialogue open, talking to our publicans and trying to make sure we have a sense of fair play with those negotiations. From our point of view, we have known they have been coming in. To go back to Simon’s point, we are talking to people 12 months out in a lot of instances and talking about MROs, so much so that we will have MRO sessions in our roadshows in the autumn. We will be trying to get tenant groups and tenant bodies to talk about the regulations. It is not something we are trying to evade or deny people. We want to work with all of our publicans to make sure they are profitable. We do not benefit unless we have profitable publicans.
Q120 Jonathan Reynolds: Would you say you are taking steps to actively promote the new Pubs Code to tenants?
Stuart Gallyot: Absolutely. We will be engaging both with the adjudicator, and we will probably talk about that later, and the trade bodies. Ultimately, MRO is not going to suit every tenant. There will be a position where rents will go up, there will be less support and there will be a different type of agreement. It is not going to suit everybody. Tied agreements still work: they provide a low-cost entry and they provide support. We are prepared to engage on a number of levels.
Q121 Jonathan Reynolds: If we were to talk to some of your tenants, do you feel they would say, “We have been supplied with information about the new Pubs Code”?
Stuart Gallyot: No, they would not, because ultimately we do not know what the Pubs Code in theory even looks like at the moment. We know roughly what it looks like. Our area managers have guides on it and they will provide our publicans with a guide and explain what MRO is about. We are happy to talk about it. Ultimately, it is a difficult one to talk about when you do not know what the regulations really mean and when they are coming in.
Simon Townsend: I would endorse that point entirely. We have not sent information out to tenants ahead of the regulations finally being made. We have, however, prepared all of the draft letters and all of the communication. The day that the regulations are made, correspondence will be sent to every one of our tenants, highlighting to them that the Pubs Code has come into effect, where to find it and other useful sources of information, the adjudicators’ correspondence address and a means by which to raise any queries they have. We will do that the moment the Pubs Code is made.
Q122 Craig Tracey: Will the introduction of the code mean a move to more managed or franchise pubs in the future?
Simon Townsend: It will not make a difference to the strategy that my company has set out, which was developed, evolved and implemented before the Pubs Code was amended to the extent it was with the vote in November 2014 and the introduction of the MRO clause. My company has laid out a strategy whereby we are intending to manage a great deal more pubs ourselves. We are also setting out to operate many more of our pubs on pure rental-only, free-of-tie agreements. We had laid out that strategy before the MRO option was applied to the Pubs Code. Therefore, the evolution of the regulation has not changed our strategy at all. We committed to the operation of great pubs in the UK. We want to invest in our pub estate. We want to attract people to run our pubs in a variety of business models, whether it is on a free-of-tie basis, a tied basis, or a managed-house basis. We now operate all of those models. Our strategy is to continue to do that and invest in UK pubs.
Stuart Gallyot: The legislation certainly makes you look at your estate differently, because ultimately we are looking to get great, generally happy people behind the bar. It is about customer service, people in the pub and consumer experience. We are trying to extend or grow the income from that pub, rather than just doing what we have always done. We are looking to try to improve the consumer experience, the operator of the pub’s experience, our experience and, in some respects, our investors’ experience. Yes, overall what we are seeing from our managed estate is that pot growing and consumers being happier when they are walking into pubs. Yes, it has been a catalyst in some respects to look at our estate. Overall, that profit-sharing style of operation is proving popular for everybody.
Simon Townsend: My company certainly remains completely committed to the tied leased and tenanted model with the application of the Pubs Code to that model. That has not changed our view on the appropriateness and the fit in the tied leased and tenanted model as a great way of running some pubs in the UK. Indeed, we have laid out in our strategic review and annual reports that we expect to have something like 2,500 pubs in our tied leased estate by 2020 out of a total of 4,200 pubs. It remains a very large part of our overall business.
Stuart Gallyot: We are in the same place.
Q123 Craig Tracey: We have received reports from tenants that have been told by business development managers that they have no MRO rights. If their rent review proposals were sent out ahead of the implementation date, irrespective of their rent review date, the adjudicator has already said this is incorrect. I wanted your comments on that. Can you give reassurances that incorrect information is not knowingly passed out and, if it has been accidentally passed out, there will be a review to ensure that tenants are fully advised correctly?
Simon Townsend: My understanding is it is unequivocal that if a rent review has not been settled on a due date, for a due date that is later than the implementation of the Pubs Code, that rent review will be entitled to the full protection of the Pubs Code, including the MRO option. Indeed, the transitional arrangements within the pubco require us to reissue the rent quote for those pubs in order that they can then consider their options.
Q124 Craig Tracey: That is your company’s position.
Simon Townsend: Categorically.
Stuart Gallyot: We will talk to all of our publicans and give them the advice that we believe is correct at the time. It is as simple as that. To a large extent, we are always talking to our publicans about trying to settle the rent review in good time. We absolutely would never evade the possibility of an MRO, because that is a statutory right.
Q125 Craig Tracey: Because of the delay in implementing the code, are your companies looking sympathetically at tenants asking for backdating? What is your company’s view on that? Do you have a policy on it? Would you look sympathetically on it or is it a non-starter?
Stuart Gallyot: To come back to my previous answer, we will keep on talking to our publicans about what the best route for them is. We will follow the regulations, ultimately. The regulations say that the regulations would have been in place on 26 May, but they do not talk about an implementation date; they talk about the regulations being in place. We will follow the regulations but still talk to our publicans all the way through.
Simon Townsend: My position is identical. I concur with what the Minister said the other day—that backdating of something is not possible anyway. We will be applying the regulations on the date on which they are made.
Q126 Chris White: My question is to Stuart Gallyot. I received a letter from Duncan Garrood saying, “We remain committed to working positively with our publicans at the Millwright Arms and I remain confident that we will be able to conclude matters positively for all concerned.” I believe you sat through the whole of the evidence session and heard the evidence from the Millwright Arms. What will you be saying to the Millwright Arms or a similar pub tenant following this session?
Stuart Gallyot: We will talk to all of our publicans as soon as the code comes out in respect of those outstanding rent reviews. For Millwright, I know the surveyor concerned has been trying to contact the publican at the site. We will sit down and work out what the right rent for that site will be. The quote of 40% is not quite accurate, because the increase is not as significant as that. Ultimately, we have comparable evidence that shows that level of rent is about the right level.
Q127 Chris White: What level of rent is about the right level—the 40%?
Stuart Gallyot: The one we have proposed. The rent we have proposed.
Q128 Chris White: What is that, for clarification? If you do not have it in front of you, that is fine.
Stuart Gallyot: I do not have it to hand, unfortunately. With similar tenants in the situation where there is a hiatus from 26 May to now, we will come back and be talking to all of those publicans. We will follow the regulations.
Q129 Chris White: The point I am trying to make, and you are giving a fair answer, is they seem to have a very different view of this coin. I want to know why that is.
Stuart Gallyot: Frankly, as a company, we are not perfect. We get things wrong sometimes. The position with that has been a simple lack of communication. When we started the whole process, which was in October, before the regulations came out, we did not know whether an MRO was going to be there. The Fleurets issue is a bit of a red herring, from our point of view. We were not aware of the Fleurets issue. We have tried to contact the publican at various points. The first thing we know in terms of the proposal we have put to them is it is on the front page of the trade press. We then try to talk to the publican and we will continue to try to talk to the publican at Millwright. We just want to talk to them.
Q130 Chris White: I am not giving you any advice on how to run your business, but you might have an opportunity in about 15 minutes to chat to Millwright directly. One of the things you said, Mr Townsend, is you had letters ready to go to your publicans regarding the Pubs Code. You have not sent them out. That is just a statement. With regard to you at Punch Taverns: “As previously advised, we are more than happy to place rent negotiations for the Millwright Arms on hold until such a time as the Pubs Code is implemented.” I imagine that is a communication you have had with the Millwright Arms.
Stuart Gallyot: Absolutely.
Q131 Chris White: Is that a communication you have had with all your tenants?
Stuart Gallyot: Of those tenants that are waiting and had the conversation, we have contacted those who have expressed a concern about the MRO and want more information. We have said, “We will stop.” We have made everybody aware, through the negotiations, that there is an MRO coming. If they still want to wait, we will happily wait. Alternatively, if they want to settle their rent review, we will settle their rent review and give them some certainty. We are trying to give all of our publicans transparency and the understanding that the options are open.
Q132 Chris White: I do not want to be hard on you on this, but you would wait until you had communication from your tenant before you gave them any information.
Stuart Gallyot: Yes, simply because we do not know what the regulations are. As soon as the regulations come out, however, we will be writing to all our tenants, giving them all the details of the Pubs Code Adjudicator: website, free phone number and all the rest of it.
Q133 Chris White: Thank you. One of your appeals—we have to use that word fairly carefully—or Mr Townsend’s appeals was that you offer low-cost entry into this sector. Did you make that comment?
Simon Townsend: I am sure I will have said that at some stage.
Q134 Chris White: Did you make it in this process?
Stuart Gallyot: No. It was one of the tenant groups.
Q135 Chris White: Right. Do you think you are offering sunshine and great things, then you are locked into a relationship and the screw is turned? Is that the reputation you think you get?
Simon Townsend: No, albeit I recognise that clearly we are where we are with this legislation and with some of the issues alleged over the years. When you were asking the tenant representatives earlier about the background to this legislation, this was happening at a time of unprecedented market challenge following the implementation of the smoking ban, the financial crisis and the consumer crisis. There was an unprecedented level of challenge in our marketplace and, undoubtedly, there were issues with business facing severe pressures.
That was a point at which the tied landlord pub companies, such as us, stepped up to the mark in order to assist publicans who were facing financial difficulties. It is not in our interest at any time for a publican to fail. The costs to the company, and therefore to our shareholders, are very significant. Therefore, we certainly would not want to be offering sunshine and then tightening—sorry, I forget your words exactly.
Chris White: The screw.
Simon Townsend: It only works for us if it also works for our publicans. It is in our best interest for our publicans to run successful pubs with our support and with the package of help we can provide to them.
Q136 Chair: Gentlemen, may I turn to the adjudicator? We heard in the previous panel from Simon Clarke, who said that, in terms of the ideal candidate’s skills, expertise and experience, it specifically should not be a surveyor. Do you agree with that?
Stuart Gallyot: I am a chartered surveyor.
Q137 Chair: Did you apply to be the adjudicator?
Stuart Gallyot: No, I did not. I do not think it would be a position that I would be tenable in doing.
Q138 Chair: Out of interest, why not?
Stuart Gallyot: It would not be a role I would have wanted. It is too much in the public domain for my liking. It is not a role I would want to take on.
Q139 Chair: In terms of my original question of the ideal person to be the Pubs Code Adjudicator, should it be a surveyor?
Stuart Gallyot: The position that is being portrayed—that Paul Newby is in some way in our pockets and relies on our income—is slightly exaggerated. The Fleurets business, where Paul came from, acted for tenants as well. I understand the £300-an-hour position that Mr Mountford mentioned earlier, but not everybody in Fleurets is working at £300 an hour. They advise an awful lot of normal tied tenants.
Q140 Chair: He was a partner. His charge-out rate would be that.
Stuart Gallyot: I absolutely understand that. I am trying to get to a point where he has a balance. He understands the balance between landlord and tenant. He understands the differences. It comes back to the problem around that, for anybody in the industry, frankly these are complicated regulations and it is a complicated business even though it seems like a simple business. It needs that expertise. Paul is a very professional individual who can find that balance between landlord/tenant and understand the difference. The fact that he has acted or will have acted for pub companies, yes, provides a view of being tainted.
Q141 Chair: I am very interested in the word you used. I may be picking up unfairly on the semantics, but you said the charge that Mr Newby is somehow in the pocket of big pubcos is “exaggerated”; you did not say it was untrue. Am I being unfair in terms of what you said?
Stuart Gallyot: You are not being unfair. It was probably me using the wrong word in terms of “exaggerated”. The £300 an hour, in terms of the problems that creates for the average publican, is absolutely right. However, I am trying to say the Fleurets business as a whole does act for tenants as well. Paul has been part of that balance.
Q142 Chair: Mr Townsend, do you think it should be a surveyor?
Simon Townsend: I am not a chartered surveyor and I did not apply for the Pubs Code Adjudicator’s role. I am ambivalent about the appointment of Mr Newby as an individual. I am ambivalent about whether it should have been a chartered surveyor specifically. However, the adjudicator requires experience and knowledge of this sector in order to fully comprehend and apply the very complex regulations that have now been laid upon the sector. Therefore, the combination of characteristics in the appointment that has been made appears to meet the expertise criteria I think are valid.
Q143 Chair: May I ask you both, gentlemen, a very direct question? Do you have confidence in Mr Newby?
Simon Townsend: I do for the simple reason that I am assuming, fairly, having gone through a public appointments process, the degree of assuredness that the appointments committee will have received for the individual and his ability to do the job will have passed scrutiny tests. I am also aware of Mr Newby in our industry and have no reason to doubt that he will apply himself appropriately to the task in hand.
Stuart Gallyot: The proof of the pudding will be in the eating. “I do not know” is the short answer, until we are 12 months down the line. We will need to understand how he adjudicates on the facts. I take the point the other witnesses gave that it is going to be a testing time for him. He is going to have to understand both sides. Ultimately, it is about facts. If he makes the right judgments on facts, I will be happy.
Q144 Chair: Mr Townsend, I am struck by your comments. They are in very stark contrast to the previous panel, who do not have confidence in Mr Newby. The comments and phrases used by Dave Mountford and Simon Clarke were that it is very important that we have impartiality, no conflicts of interest and perceptions of bias. Those are the reasons why they do not have confidence in Mr Newby. You said you do. Can you understand the concerns in that this is not an independent appointment, is it?
Simon Townsend: I hear the concerns. I have to agree with Stuart’s earlier comment that, surely, it would be appropriate to judge Mr Newby on the evidence of his application and the judgments he makes in the role of adjudicator. Clearly the appointment process will have taken account of all the potential issues and the characteristics of the individual who would be best suited to deal with the adjudicator’s role.
Q145 Chair: I am very conscious of time, because I know that Johnny has to go. This is the analogy I used to Mr Newby when he came before us. It is like Newcastle and Sunderland playing a match. It is like having some concerns because the referee lives near the Tyne Bridge. It is a case of, “Let us just wait and see how those 90 minutes of play are undertaken before we pass judgment.” The perception of independence is as important as independence, isn’t it?
Simon Townsend: I accept perception matters, but I passionately believe that we should base our judgment on the role of the adjudicator on the evidence of his application of the role. This has been a long time coming and we are now on the very verge of the Pubs Code being put into effect with an adjudicator in position. It is clearly going to be very high profile and I imagine all parties subject to this debate, including this Select Committee, will want to see the evidence of that role carried out effectively, as do I.
Q146 Jonathan Reynolds: There are two very different perceptions of this appointment and the state of play in the industry. Both of you have said that you believe self-regulation was working, and that is a fair view. Equally, you will be aware there is a view that it had comprehensively failed. That, in the main, is the tenants’ view. I would put it to both of you that, in that situation, where it might have been quite hard to agree on an adjudicator, at the very minimum having a person in position who has a direct financial shareholding interest in one of the companies to be regulated is unwelcome. Let’s be honest: it would be much better if that were not the case, wouldn’t it?
Simon Townsend: I have to refer to my earlier comment, which is that it is not for me to judge the appropriateness of the appointment that has been made. I am presuming an extensive process was gone through, and we have to now allow the adjudicator to adjudicate.
Stuart Gallyot: To a large extent, we did not appoint Mr Newby. We are going to have to deal with Mr Newby in the same way tenants are going to have to deal with Mr Newby. We will deal with it as we go along. We have what we have, haven’t we?
Q147 Jonathan Reynolds: Is there genuinely no concern on your part that, because there might be a perception of closeness to industry, decisions might go against you? If someone was asserting their independence, there might be a series of judgments that you might feel are prejudicial to you?
Stuart Gallyot: We have to go with an open mind to this. It is a position we have been handed. We have to work with it. We are trying to engage and work with it, in the same way we try to engage and work with the regulations. Ultimately, it is about hoping that it works. I think all the groups have something in common, which is that we want successful pubs in our towns and cities. That is the fundamental basis. I think Mr Newby wants that as well.
Simon Townsend: If it would help to give two small additional comments to that, I happen to know that in the last three years Mr Newby has acted for my company once where we were the tenant of a landlord company and once against us. I have no particular view on whether we agreed with Mr Newby’s arguments on either case, but I also know that Mr Newby has acted for us as a landlord on four occasions in the last three years, and has acted against us as the landlord, for our tenants, on five occasions in the last three years. Again, I have no particular view on the degree to which we will have agreed with Mr Newby’s judgments in those cases, but I have no reason to doubt them either.
Q148 Chair: Following on from that, Mr Townsend, and following on from Jonny’s comments, in terms of that closeness or perception of closeness to industry, do you know Mr Newby?
Simon Townsend: I have met him on two occasions in the last five years. I did check my diary. The first occasion was in passing in 2010 when he happened to be in our office. I met him again about a month ago, at his invitation, upon his appointment as the adjudicator, in order to commence the engagement with the companies concerned.
Stuart Gallyot: I have met Mr Newby once as a surveyor at a Midland surveyors’ social evening, but only in passing. I met Mr Newby just after his appointment. I think he met all of the six companies involved. Because I am a code compliance officer, there is a forum for code compliance officers, and I met him there 10 days ago.
Chair: Gentlemen, thank you very much for your time. We are very grateful. Thank you.