The “Duty to Trade” – a Licensing Phantom?

ON THE MATTER OF WHETHER THE LICENSING (SCOTLAND) ACT 2005 IMPOSES A “DUTY TO TRADE”, THE MEANING OF “CEASES TO HAVE EFFECT” AND PREMISES WHICH HAVE CEASED TRADING

One of the most vexed debates arising from the 2005 Act has been the notion of the “duty to trade”.

But just what is the “duty to trade?”

This refers to the idea that the 2005 Act imposes a legal requirement for a premises to trade the hours it has been granted in the licence. If a pub has been granted hours of 11am to 1am seven days a week, then there is a legal obligation for the pub to be open during the hours stated.

The matter has been debated on a number of occasions but has come to my attention again as a result of recent coverage of the Angus Licensing Board’s decision to revoke several licences for non trading premises. In one case, a premises known as Oden’s Nightclub had its licence revoked because it was not trading. The licence holders appeared at the hearing and asked the Board to leave the licence alone because they wished to reopen after refurbishment; and the refurbishment had been delayed due to a lack of funding. The Convenor of the Board is quoted as saying “”We do have a difficulty as the terms of the act requires you to trade. In terms of cancellation I think that would be the best route for you. The licence would cease but when you are ready to reopen you would then apply“.

There is another issue swimming around here; to do with a licence “ceasing to have effect” if it stops being used for the sale of alcohol – but I will come back to that later. Let with stay with the “duty to trade” for now and nail my colours firmly to the mast. There is no duty to trade. It is a licensing phantom.

THE HISTORY OF THE “DUTY TO TRADE”
The idea of a duty to trade arose because of the formulation of the 2005 Act provisions on licensed hours. The old 1976 Act had put such matters beyond doubt. Under s.54(5) of the Licensing (Scotland) Act 1976 was in the following terms:

Nothing in this Act shall be taken to require any premises to be open for the sale or supply of alcoholic liquor during the permitted hours“.

No such provision exists in the 2005 Act. So begins the argument for a duty to trade. When the Act came into force, a number of licensing boards and police forces flirted with the idea of supporting the notion of a duty to trade but in the end only a handful licensing boards took it with any degree of seriousness with one or two indicating licences could be reviewed if it was found they were not trading the full hours.

The Scottish Government appeared to support the view of the duty to trade in their original guidance to licensing boards. Although it was not specifically named (the Lord Voldemort of licensing?) paragraphs 69 and 70 of the Guidance (which was published in April 2007 and is now incredibly out of date) are as follows:

69. Boards must recognise that there may be circumstances which would reasonably cause a temporary deviation from the trading hours given in the operating plan, for example a bereavement, illness, holidays, or where the weather makes a premises inaccessible. This is not an exhaustive list but one which simply illustrates certain difficulties which licence holders may encounter. Such circumstance should not ordinarily be considered a breach of the operating plan. Boards are expected to adopt a common sense approach with regard to such cases.

70. Ministers also expect a common sense approach by Licensing Boards where licensed premises, when faced with no demand for customers, wish to close early and therefore not trade for their full complement of licensed trading hours. In considering such issues Licensing Boards should given particular attention to whether these “un-used” hours are preventing new entrants into the market. If so, consideration should be given to changing the operating plan of the premises concerned.

If the Scottish Government says there is a duty to trade, then there must be, mustn’t there? But with no s.54(5) to refer to, what is the statutory soil in which this concept is planted?

THE STATUTORY SOIL…OR LACK OF IT
Section 1(1) of the 2005 Act says that “Alcohol is not to be sold except under and in accordance with [a premises licence]”. A contravention of this is the worst possible offence under the 2005 Act, with conviction leading to a possible £20,000 fine and/or 6 months imprisonment. Serious stuff.

Then we turn to Schedule 3 Paragraph 2 which imposes a mandatory condition as follows: “Alcohol is to be sold on the premises only in accordance with the operating plan contained in the licence“.

Within these two provisions lies the supposed “duty to trade”. The argument is that as the licensed hours are a part of the licence and a part of the operating plan, not trading to those exact hours is not selling alcohol “in accordance” with the operating plan.

I do not agree.

Only in accordance with” must mean that the operator must stay within the terms of the maximum leeway allowed within the licence; not that he must adhere to the full allowance at all times. In other words the phrase “only in accordance with” is permissive, not compulsive. A licence is not a diktat. It is a permission allowing a thing to occur within and not outwith the limits of that permission.

This can be borne out by looking at the Act’s sister provision in relation to activities. Whilst Schedule 3 Paragraph 2 discusses the sale of alcohol in accordance with the licence, Paragraph 3 says:

Any other activity to be carried on in the premises is to be carried on only in accordance with the operating plan contained in the licence“.

If you believe that there is a duty to trade the full hours in selling alcohol, then by the same logic you must also believe the Act creates a statutory duty to provide all of the activities allowable under the licence at all times of the day and night. And that view can only be repugnant to reasonableness. Clearly Parliament could not have intended that a premises must have all activities all taking place during the whole duration of the licensed hours. Yet if you believe in the duty to trade, you must also believe in the duty to provide activities.

Lets unpick the other parastatutory arguments in favour of a duty to trade. The argument in the Government guidance that the “unused” currency of a licence would in some way prejudice other entrants to the market who would be quite willing to use those hours is, in my view, without foundation. I just cannot see this. I do not recall any such issues arising under the 1976 Act and do not recall any clamour in the trade over sitting licence holders “hoarding” an allocation of unused hours. The system does not work that way and I just do not see the mischief.

In addition, the argument ignores the very many premises which do not trade in the typical sense on a daily basis. The duty to trade pre-supposes that all licensed premises are like pubs. They are not! Think of the number of art centres, theatres, distilleries, visitor attractions and other similar premises all over Scotland which trade erratically, opening on some days but not others, only for certain portions of certain days; and this may change on a week to week basis depending on business and events. The idea of having fixed hours which one must trade simply cannot apply to them. A licence is permissive – it lets the operator decide for himself which hours to trade up to the maximum allowed under the licence.

Finally, to me it must be illogical and absurd that a licensing Act (especially one which contains an objective of protecting and improving public health) should penalise licence holders for NOT selling alcohol. For that is what the duty to trade does!

Regrettably we may need case law before the matter is put of doubt. The nearest we have had to judicial scrutiny of the matter was in Morrisons v South Aberdeenshire Licensing Board [2010] CSOH 66 in which Morrisons had sought judicial review of the Board’s policy stance on the “duty to trade”. Unfortunately, presiding judge Lord Brailsford took the view that judicial review should not be used to challenge a policy stance; that the issue was hypothetical. He was pressed by both parties to give an obiter view, but refused to do so.

This brings me back to the Angus decisions to revoke certain licences.

“CEASES TO HAVE EFFECT”
The Angus story conflates the concept of the “duty to trade” with another concept under the 2005 Act, namely “ceases to have effect”. Section 28(5(b)) of the Act says that a premises licence ceases to have effect where “the licensed premises in respect of which the licence was issued cease to be used for the sale of alcohol”. This is the provision that I believe the Angus Board is having regard to but I have doubts over the process they used to get to that point. This is not a criticism of the Board per se, more of the system that they are tied into using.

I would be interested to learn exactly how the Board went about bringing licences in this category before them. They could only do so, as I see it, on prescribed grounds for review which are either that a condition has been breached or a ground relative to the five licensing objectives. One must speculate that the Board, or perhaps an LSO, has instigated the review on the basis that not trading is a breach of the condition noted above, i.e. “Alcohol is to be sold on the premises only in accordance with the operating plan contained in the licence”, in other words the “duty to trade” has been used to instigate the review.

However, the duty to trade is not explicit on the face of that condition and indeed this whole blog is an argument that no such duty exists. Conditions need to be clear and enforceable especially where breach could result in a £20,000 fine and/or 6 months in jail! I have referred to the “enforceability” of conditions in a previous blog, here. Even the supporters of the duty to trade must concede that the matter is unclear, although there is no 1976 style s.54(5) neither is there a clear provision requiring a premises to trade the hours stated on the licence. I suggest then that a parajudicial process mounted on the enforcement of such a condition could be challengable on that basis. Secondly, if you agree with the Board that because the premises was not trading the licence “ceased to have effect” then exactly what licence was the Board reviewing, and what licence did they revoke? The review process is not designed to allow the Board to make declarations as to the effect of licences under s.28. If it had ceased to have effect, this had already happened prior to the hearing so there was no licence to revoke!

I was involved in a case in Stirling where the Board sought review of a licence with a view to revoking it because it had not traded for 2 years or so. John Batters appeared and explained to the Board that the owners were struggling to find a tenant in a very difficult economic market; that there was no permanency to the cessation of alcohol sales. The Board agreed and dropped the review. Angus have clearly taken a different approach.

So what is meant by a premises ceasing to be used for the sale of alcohol? If one sides with the Angus Board, then a period of closure will be sufficient to establish this even where there is an intention to reopen. If you consider my Stirling example on the other hand, a period of 2 years was not sufficient for that Board to agree it had ceased to be used. There is clearly going to be divergent spectrum of views on this point and it is another area on which we may have to await an appeal case. Perhaps this Angus decision will bring that – we shall see. But in my mind, the intention of Parliament with the wording in s.28(5) implies some degree of permanency beyond a temporary cessation.

In other words, if a pub is sold and transformed into a bank or a charity shop, then clearly the premises has ceased to be used for the sale of alcohol. On the other hand, a closure due to economic circumstances where there is an intention of re-opening and someone willing to stand up and say “I want this licence” in my view must be a reasonable position to deem the licence to be alive at least pro tem. Following the alternative view to its logical conclusion means that the licence ceases to have effect at the exact moment alcohol sales stop. That surely cannot be correct and would create an absurdity: a pub ceases to be used for the sale of alcohol at 11pm on Monday night when they close. Does that mean the licence is lost by Tuesday morning? Of course not. Just how long does it need to be closed for? There’s the rub.

A final point is the question as to what the status of a licence which “ceases to have effect” is. The general consensus on this appears to be that the licence is irretrievably lost. It is not capable of transfer and cannot be brought back to life. The only remedy is an application for a grant of a new licence. That view is not universally shared. Another question for an appeal!

That there are such lacunae and darkened corners here takes us back to a theme which has permeated this blog and indeed general commentary on Scottish licensing law – the 2005 Act is hardly a robust example of quality Parliamentary drafting.

I would urge anyone interested in this debate to read Jack Cummins excellent article “Is there a Duty to Trade?” [2008] 41 SLLP 14.

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About Stephen McGowan

Leading Scottish licensing solicitor at TLT. Chairman of BII Scotland.
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