Scottish Tied Pubs Adjudicator's investigation policy: consultation

Part 3: Investigation and enforcement function

Statement for initiating an investigation

This part of the document explains how the Adjudicator will seek to ensure compliance with the Code. The Act provides that the Adjudicator may investigate a pub-owning business’s compliance with the Code if the Adjudicator has reasonable grounds to suspect that the business has failed to comply with the Code. However, the Adjudicator cannot carry out an investigation until a statement about the following criteria has been made publicly available:

(a) the criteria that the Adjudicator will adopt in deciding whether to carry out an investigation;

(b) the practices and procedures that the Adjudicator will follow in carrying out an investigation;

(c) the criteria that the Adjudicator will adopt in deciding (i) whether to take enforcement action, and (ii) what type of action to take; and

(d) the criteria that the Adjudicator will use in setting the amount of a financial penalty imposed.

Taking each of these in turn:

The criteria that the Adjudicator will adopt in deciding whether to carry out an investigation

The Adjudicator shall, within four weeks of a suspected failure to comply with the Code coming to their attention, determine whether to initiate an investigation, after the expiry of which period an investigation may not be initiated.

The Adjudicator will conduct investigations discreetly and as quickly as possible, gathering all necessary information. If it is reasonably apprehended that the Code has not been complied with, parties will have the opportunity to explain their position in writing, via video call, or in person.

Case complexity, workload and witness numbers may be factors in determining the timeline of the investigation, however the Adjudicator will aim to complete each case within 12 months of the suspected failure to comply with the Code coming to the attention of the Adjudicator. The Adjudicator will typically look to inform parties of the expected lifespan on the investigation and keep parties informed if more time is required than predicted. Investigations will be guided by four key principles of Impact, Strategic Importance, Risks and Benefits and Resources, as explained below.

Impact

The Adjudicator will assess both the impact on individual tenants and the number of affected tenants. If the alleged breach has a significant impact, the Adjudicator is more likely to investigate, especially if it could affect a large number of tenants. Where there is an allegation of a one-off breach of the Code, unless it significantly affects a large number of tenants, the Adjudicator may be less likely to start an immediate investigation. Instead, the Adjudicator may address such cases initially through discussions with the pub-owning business or via the arbitration process when a tenant formally refers the matter.

Strategic Importance

The Adjudicator will assess whether starting an investigation aligns with statutory obligations and use their best endeavours to exercise their functions consistently with the regulatory principles, as set out in the Act, that:

• there is fair and lawful dealing by pub-owning businesses in relation to their tied pub tenants;
• tied pub tenants should not be worse off than they would be if they were not subject to any product or service tie; and
• that any agreement between a pub-owning business and a tied-pub tenant should fairly share the risks and rewards amongst the parties.

The Adjudicator will, when investigating complaints, be alive to identifying patterns of behaviour that lead to Code breaches. Investigations are more likely when there are grounds, in the Adjudicator’s view, to allege and/or suspect arrangements or other actions may have been designed to frustrate Code principles.

For isolated or inadvertent suspected and/or alleged breaches, the Adjudicator may discuss the matter with the relevant pub-owning business initially. The Adjudicator may, when deciding whether to investigate a matter, have regard to whether an investigation may deter non-compliance and/or encourage compliance with the Code in the future.

Risks and Benefits

Before starting an investigation, the Adjudicator will have regard to potential outcomes. These are not limited to formal enforcement remedies; they may also involve clarifying the Code. The Adjudicator will consider the likelihood of an investigation resulting in successfully ending practices that breach the Code (when deciding whether to investigate or continue an investigation in respect of any given issue).

Resources

The Adjudicator will investigate or continue an investigation only if, in the view of the Adjudicator, it is reasonable and proportionate to do so. Even if resource-intensive, an investigation may be justified - the Adjudicator will consider the impact on tied tenants, strategic significance and risks. Conversely, the Adjudicator may decide not to commence or continue with an investigation where the impact, significance and risk are not considered to (or no longer) justify the allocation of resources.

When deciding whether to investigate, the Adjudicator also weighs the benefits, such as education and promoting compliance, against potential future resource demands arising from similar matters. When making decisions in respect of and in relation to investigations and arbitrations the Adjudicator will act consistently and will have regard to the four stated principles of Impact, Strategic Importance, Risks and Benefits and Resources.

Practice and Procedure

In carrying out an investigation, the Adjudicator will take steps that may include (but are not limited to):

Scoping and Planning

• Initial fact gathering/ information gather/ background and context
• Gather evidence
• Terms of reference/objectives/confidentiality/data management
• Resource required
• Cost of investigation
• Legal research
• Timeline

Scope refinement

• Narrow the scope of the review and identify most relevant documents
• Review the detail
• Highlight key facts
• Assess additional resource requirement

Consultation with subject matter experts

• Engage industry experts and surveyors
• Legal advice/research

Detailed investigation and process information

• Prepare for witness interviews/evidence capture
• Complete preparation and follow-up
• Review details and other relevant facts/issues
• Organise and evaluate facts

Summarise findings

• Analysis and reporting to client and/or business and other stakeholders that is subject to the investigation
• Publish a written report of findings
• Establish monitoring and evaluation arrangements

The criteria that the Adjudicator will adopt in deciding (i) whether to take enforcement action, and (ii) what type of action to take

The Act empowers the Adjudicator to enforce compliance when a pub-owning business breaches the Code. The enforcement can include financial penalties and aims to raise awareness and understanding of the Code. The Adjudicator will consider the following criteria for enforcement action:

• Consistent: Ensuring fair, equitable and non-discriminatory enforcement by coordinating actions between tenants and pub-owning businesses.
• Fair: Decisions on enforcement are guided by legislation. The Adjudicator will ensure that the choice of enforcement option is always consistent, balanced and fair.
• Impartial: Enforcement decisions are made impartially, avoiding conflicts of interest or undue influence.
• Transparent: Providing written explanations of contraventions and proposed actions, with opportunities for discussion before final decisions.
• Proportionate: Enforcement action will be proportionate to the circumstances of each case and will not be affected by improper or undue pressure from any source. Where the Adjudicator considers that formal action is necessary each case will be considered on its own merits.

These enforcement measures are designed to ensure adherence to the Scottish Pubs Code. Contraventions will be confirmed in writing with the consequences for failing to remedy them set out clearly, including:

• directing the business to do, or stop doing, something specified to comply with the Code;
• directing the business to publish specified information related to the investigation in a specified manner by a specified deadline; and
• imposing a financial penalty on the business.

The criteria that the Adjudicator will use in setting the amount of a financial penalty imposed

The Act allows for the Adjudicator to recover some or all costs of an investigation from the person who made the complaint (which could be a tied tenant) if the complaint is found to be vexatious or wholly without merit. The Adjudicator may also impose a financial penalty on a pub-owning business if, following an investigation, the Adjudicator concludes that the business has failed to comply with the Code.

The Tied Pubs (Fees and Financial Penalties) (Scotland) Regulations 2024 set the current maximum financial penalty the Adjudicator may impose as 1% of the pub owning business’s annual turnover (or 1% of group turnover where the pub-owning business is part of a group). Where the business is part of a wider pub-owning group then the percentage will apply to the combined annual turnover of the group in the UK. This represents a significant penalty. The pub-owning group is defined as the pub-owning business and its group undertakings (which has the meaning given by section 1161 of the Companies Act 2006).

In practice, each case and the appropriate penalty to be imposed will be considered on its own facts and circumstances and will require assessment of the nature and severity of any breach or failure in compliance. Subject to the permitted maximum penalty limit, the Adjudicator will calculate the appropriate level of a financial penalty by applying the following criteria:

Initial Assessment: The Adjudicator begins by determining an initial penalty amount based on the severity of the breach or if there was a failure to follow a recommendation.

Aggravating Factors: The initial amount may be increased (subject to the permitted maximum penalty limit) if there are aggravating factors, such as:

• if the breach or failure was intentional;
• if there were repeated or multiple breaches or failures;
• if the breach continued even after a recommendation from the Adjudicator;
• if the breach was due to negligence and could have been avoided.

Mitigating Factors: The initial amount may be reduced if there are mitigating factors, such as:

• the extent to which the party cooperated with the investigation;
• how quickly the party acted to remedy the breach or failure;
• any other relevant matters, such as consideration of measures already taken by the pub-owning business to prevent future breaches and proportionality (ensuring the penalty is fair and reasonable).

Having conducted an investigation into a pub-owned business's compliance with the Code, the Adjudicator will publish a report about the investigation. This report will state the Adjudicator’s findings and the reasons for them, what enforcement action (if any) the Adjudicator has taken or intends to take and the reasons for that decision. A report need not identify by name the investigated pub-owning business. However, if the Adjudicator intends to identify the pub-owning business by name in a report, the Adjudicator will provide the business with a reasonable opportunity to comment on a draft of the report within a specified timescale before publishing it. Comments from the pub-owning business will be carefully considered, and if necessary, the report may be revised and re-provided to the business for further review before final publication.