Legal advisers acting for Shabir Mohammed, owner of Lifestyle Express in Newcastle, said he planned to pursue the local authority after he lost £280,000 when he was banned from selling beers and ciders above 5.6% abv.
The retailer was also forced to remove certain wine brands from his shelves as part of the council’s Reducing the Strength scheme. The measure was added as a condition to his licence in May 2014 and when the licensing committee refused to remove it later that year, he launched a successful legal appeal.
In a landmark hearing, a senior magistrate ruled in favour of Mohammed, heavily criticising the authority’s actions for imposing a condition despite a lack of “direct evidence that the premises was undermining licensing objectives”.
Legal experts have warned the case could open the floodgates to a tide of similar cases from retailers who believe they have been strong-armed into joining Reducing the Strength schemes, and councils could be liable for significant compensation claims.
Jane Gilliead, the licensing consultant representing Mohammed, told OLN: “It is a huge concern that licensing authorities are adopting such verbal schemes, without there being any consultation with the trade. We are now looking at the possibilities for recouping some of the lost earnings and he is fully intending to pursue this.
“Ultimately my client could have gone out of business, such were the considerable losses and the time it has taken to overturn this illegally applied measure.
“Retailers have been reluctant to challenge such schemes for fear of reprisals, so it is a vital step forward for those who are subjected to these schemes.”
Competition lawyer Martin Rees agreed councils could be open to legal action.
He said: “Retailers might well consider seeking compensation for loss of profits if the whole scheme was unlawful under competition law. Normally if you are a member of the cartel involved, you can’t sue anybody.
But if what local authorities did was wrong and accompanied by any kind of duress, a retailer might take action over loss of earnings because they were involved in a scheme.”
Councils could also face action from suppliers who can demonstrate loss of earnings where Reducing the Strength schemes are proven to be illegal.
Gordon Johncox, managing director at Aston Manor, said: “The potential repercussions from this case are enormous if this instance represents a precedent. Bear in mind a single retailer claimed a loss to their business of £280,000.
“Certainly it will prompt dozens if not hundreds of retailers to consider their circumstances and whether a similar challenge is merited – and also for retailers who have reluctantly joined these schemes to reconsider their position and leave the schemes.
“We could also take a local authority to court. Our legal council has said pretty unequivocally that we would win.”
Details of the legal threat looming come as more members of the trade join OLN in our campaign for clarity.
Last year we logged a formal complaint to the European Commission in Brussels seeking intervention and this week the British Beer and Pub Association said it was also contacting the Commission.
BBPA chief executive Brigid Simmonds, said: “We intend to seek the Commission’s views, as we have long shared OLN’s concerns on the competition effects of these schemes and their impact on our members.”
Johncox is also making a complaint. He added: “We are very supportive of the work that OLN is doing on behalf of retailers and it is our intention to make representation so the Commission examines these schemes too.”
Last week the Competition & Markets Authority issued amended guidelines to retailers concerned they could be participating in an illegal scheme.
But Rees said the guidance was “fundamentally misleading”. The CMA warned retailers “not to let council officers let you know what other retailers may be doing”, but Rees said this is unrealistic as the essence of the scheme is to get retailers to act together.
Rees said: “The advice is fundamentally misleading because it suggests such schemes can be lawful. The suggestion appears to be that if the council official approaches each retailer separately with the suggestion that he should not sell certain products, and makes no mention or hint of similar approaches being made to other retailers, the retailer believes that it is only he that is involved and no infringement would arise.
“Retailers would have to make sure they made no mention of it to other retailers and would have to do their best not to find out about the secret scheme.
“If they did get wind of the existence of such a scheme, they would have to repudiate it.”
Rees said this is “an implausible situation”. He added retailers could be prosecuted because it could be inferred they knew rivals were joining the scheme and thus creating a cartel that adopts a collective boycott.
“In practice it would be very difficult to defend a retailer in such a situation,” he said.
Emag Licensing Solutions has offered OLN readers seeking legal advice a reduction on its standard fees. For more information, contact Jane Gilliead, firstname.lastname@example.org.