Will Wetherspoons’ beer taps run dry?
There is an ongoing legal battle between hospitality giant, JD Wetherspoons, and AB InBev (trading as Budweiser Brewing Group UK&I (InBev)), the world’s biggest brewer, responsible for household brands including Budweiser, Bud Light, Stella Artois and Corona.
After 6 months of negotiations, a contract was signed in November 2021 whereby Wetherspoons appointed InBev as its lead brewer for over 20 years, bringing an end to Wetherspoons’ previous partnership with Heineken.
However, even Goliaths of the consumer sector have felt the pinch of UK inflation hitting a 41 year high in 2022 caused by factors such as the pandemic, Russia’s invasion of Ukraine and the global supply-chain crisis. We understand that papers filed in the High Court confirm that only 2 years into Wetherspoons’ and InBev’s relationship, the two are embroiled in a dispute.
Terms of the contract between the two included terms about the share of Wetherspoons’ bars that would be dedicated to InBev’s products. The contract included a requirement that Wetherspoons would display and dispense a pre-agreed number of InBev’s brands on beer tap T-bars in its 843 pubs. The contract also prevented Wetherspoons from displaying and dispensing certain competitor products from its beer taps. The dispute that has arisen between the two companies relates to who is responsible for arranging and implementing this product reorganisation.
Wetherspoons says that whilst the contract was silent on the point, it is “obvious” that InBev had responsibility for the reorganisation and that both it and InBev assumed InBev would do this given that this is in line with established industry practices. Wetherspoons point to communications between it and InBev following entry into the contract to evidence the “shared common assumption” between them about InBev’s responsibility. InBev disputes this, arguing that such work would need to have been the subject of an entirely separate contract.
Wetherspoons has issued Court proceedings against InBev seeking a declaration that InBev is responsible for displaying its brands and that if Wetherspoons is found to be responsible, it is seeking an injunction to prevent InBev’s "real and substantial threat" of terminating the contract between the two parties. Court pleadings allege that InBev was seeking significant price increases in 2022, in light of soaring inflation which made the two companies’ arrangement “uncommercial” and “loss-making” in any event. Wetherspoons say that InBev told it that it would walk away if prices did not increase and that it had the right to withhold supply.
InBev denies that it is customary for lead brewers to arrange the displays and says that any communications between the parties after the contract was entered into are irrelevant for the purposes of interpreting the obligations imposed by the contract.
It also denies that it threatened to withhold supply and has instead argued that Wetherspoons’ case is a “transparent attempt to re-write the bargain reached” in order to excuse Wetherspoons’ own failures to display InBev’s products. InBev is seeking a declaration that it has the right to terminate the contract. Furthermore, InBev is counter-claiming for damages in the sum of circa £9.9 million as well as for compensation for lost sales and loss of profit in the event it does terminate the contract.
The case highlights the pricing pressures on the consumer sector and we will be following it closely, particularly on behalf of our food and drink sector clients.
It also acts as a timely reminder of the importance of ensuring that contracts cover any and all obligations each party will have and the potentially dire consequences that can result from a real or alleged failure to do so.
Finally, the case highlights that parties may wish to be very careful about what they say to each other after a contract has been entered into in order to minimise the risk that one party will then argue that the other has subsequently “assumed an obligation” with potentially costly consequences.
