This article is set against the background outlined in our first in the series, “The trading tie; where it all began”, which puts the whole topic in context.
So, does Delimitis still apply – the short answer to this is that “yes it does” and it is as important as ever.
The Delimitis case
The case Stergios Delimitis v Henninger Brau AG has faded from view for reasons we will come to later. Before we tell the story of the case readers should recall that Article 81 can apply to a network of similar agreements. The idea is that, if the market is inaccessible to new entrants because of a network of similar agreements, the trading ties created by the network of agreements can fall foul of Article 81. If your agreements do fall foul of Article 81 you are likely to want to ensure that they gain the benefit of the block exemption. If, however, you cannot or do not want to fall within the conditions for exemption from Article 81 afforded by the block exemption then you will want to know whether Article 81 applies to your agreements in the first place.
Are your agreements subject to Article 81?
This is the big question, and the Delimitis case has an answer.
The facts of the Delimitis case are shortly told. In 1985 Mr Delimitis entered into an agreement with Henninger Brau AG for the brewery to let to Mr Delimitis a café in Frankfurt. The tenancy agreement required him to obtain supplies of draught bottled and canned beer from the brewery and also supplies of soft drinks from subsidiaries of the brewery. The tenancy also required that Mr Delimitis had to purchase a minimum quantity of 132 hectolitres of beer a year to be sold in the premises. If he bought less he would have to pay a penalty for the failure to fulfil his obligations. The contract was terminated in 1986 at the tenant’s request, apparently for health reasons. At the time that the tenancy ended the brewery considered that Mr Delimitis owed him arrears of rent and a fixed amount for failure to comply with the minimum purchase requirement. The brewery deducted the sum from the rental deposit which had been lodged by Mr Delimitis. Mr Delimitis, not surprisingly, took the opposite view and said that the deduction was unlawful because he owed the brewery nothing.
Without setting out the minutiae of the issues the court held that for Article 81 to apply the following issues were identified. There are 4 in total:
1. The relevant market, for the purpose of Article 81, was held to be the distribution of beer in premises for the sale and consumption on those premises of drinks (this means, in the UK, licensed for the sale of beer and other drinks for consumption on the premises – not “off-sales”).
2. The relevant geographical market was held to be the national market in the United Kingdom (this means that just because you had cornered the market in, for example, the south side of Milton Keynes, it wouldn’t matter and you would have to look at the country as a whole which means the United Kingdom of Great Britain and Northern Ireland).
3. You will only fall foul of Article 81 if new competitors cannot gain access to the market because of the networks of supply agreements (this is referred to as foreclosure of the market).
4.If the answer to 3 is that it would be difficult for a new competitor to gain access to the market you then have to consider whether the supply agreements you have entered into make an “appreciable” (this means significant) contribution to foreclosure of that market.
This is comforting for regional and smaller brewers and pub companies. It is worth bearing in mind, though, that the case was decided in 1991 and it may be argued that things have changed since then. This may be true of points 1 and 2 but points 3 and 4 remain important. However the case gives a number of reasons why these points were made and this provides some guidance for today.
Subject to that caveat, you would be entitled to look at all of the premises in which beer is sold or supplied (this must include clubs, hotels, etc) in the United Kingdom and see whether or not you have exclusive trading rights at a significant number. Many regional or smaller brewers and pub companies would fall outside Article 81 based on this test. This should not in fact be a surprise although, when the case was published, it seemed like it. The issue was considered years earlier in 1967 in the case S.A. Brasserie de Haecht v Wilkin in which it was specifically stated that
“small breweries (like the plaintiff whose sales do not even amount to 2% of Belgium produced beer) and small retailers (like the two defendants with an annual turnover of 42kl) would hardly be likely to find their contracts annulled”.
The Delimitis case took place in 1991 and, as mentioned, things may have changed since then but the principles in the case are reasonably clear. Current issues will include the issue of what the market is and who decides it.
There is a reason why Delimitis has faded from view. The current block exemption (2790/99) includes conditions which are relatively easy to comply with. This wasn’t true of the previous block exemption (1984/83) with the result that showing that agreements were not bound by Article 81 was quite important. It may be so again if the new block exemption contains provisions which you don’t want to comply with. The possibility of there being onerous conditions in a new block exemption is one which we will return to in future commentary.
