Hotels, restaurants, pubs, clubs, cafes, bars now liable under packaging laws

Following a recent decision made by the High Court, hotels, restaurants, cafes, pubs, clubs, bars and similar operations selling bottled and canned drinks may be surprised to learn that they are obliged to register with the Environment Agency, the Scottish Environment Protection Agency or a compliance scheme and to ensure, amongst other things, that empty bottles and cans are recycled. This could give rise to additional costs for such sellers. For those affected, the regulators are likely to be making contact in the near future to ensure compliance

Bottles and cans fall within the definition of 'packaging' under the Producer Responsibility (Packaging Waste) Regulations 1997 ('the Regulations'). 'Producers' of packaging who exceed certain thresholds are subject to various obligations under these complex Regulations including the obligation to recover and to recycle specified proportions of the packaging they handle when it becomes waste.

Responding to successful industry lobbying, the draftsmen of the Regulations allocated the recovery/recycling obligations between different categories of producer. As a result, each category of producer bears a different percentage of the overall recovery/recycling targets. Current overall targets require at least 59% of packaging handled to be recovered from the packaging waste stream. At least 50% of that must be recycled. At least 19% of all glass, aluminium, steel and plastic packaging handled must also be recovered and recycled.

One class of producer is the 'seller' who, either himself or through an agent, in the course of business, supplies packaging to a user or a consumer of that packaging. The seller is responsible for achieving 48% of the overall recovery/recycling targets for that packaging waste stream.

In the case of drinks sold to consumers by shops, the shop is clearly a seller for the purpose of the Regulations. However, in the case of drinks sold in hotels, restaurants, cafes, pubs, clubs, bars and the like, it was arguable whether just the drink or the drink and its packaging (i.e. bottle or can) are sold. This issue has just been considered by the courts.

R (on the application of Valpak Ltd) v Environment Agency

Valpak (a compliance scheme registered under the Regulations) argued that the 'seller' obligations under the Regulations fell on the landlords of pubs, clubs and bars selling drinks. The Environment Agency argued that where the bottle was opened by the landlord, these obligations fell instead on the brewery or other drinks supplier. The case turned, therefore, on whether not only the contents also the bottle is sold to the customer even when (for instance) the landlord pours the drink and keeps the bottle.

The court ruled that, under the Sale of Goods Act 1979, when a landlord sells a bottle of beer, property in the bottle passed to the buyer. The fact that the landlord might keep the bottle did not affect the legal nature of the sale. Even if the buyer wanted his drink served in a glass, both drink and bottle were sold. The drink contained in the bottles was clearly intended to be sold by the bottle, so the bottle did not cease to be a sales unit just because it was opened by the publican. Accordingly, in the case of bottled and canned drinks sold in, for example, licensed premises, the landlord supplied this 'packaging'as a 'seller' for the purpose of the Regulations.

It is not yet known whether the Environment Agency will appeal this decision. In some respects the decision makes the Environment Agency's work both easier and harder. On the one hand the Environment Agency will not now be required to consider narrow factual distinctions between on- and off-licensed premises and whether or not the bottle had been opened before it was sold. On the other hand its workload is increased significantly as the number of operations that it will potentially have to regulate has been increased significantly.

Producer responsibility obligations

The implications of this decision for companies operating in the hospitality sector are, unfortunately, far from straightforward.

As a result of the decision, those operating hotels, restaurants, cafes, pubs, clubs, bars and the like, selling bottled and canned drinks will be 'producers'. They will be in the 'seller' category of 'producer', for the purpose of the Regulations. If their annual turnover exceeds £2 million and they handle over 50 tonnes of packaging (all relevant packaging, not just bottles and cans) they will be subject to the 'seller' obligations under the Regulations. Calculation of volumes of packaging handled and appropriate recovery/recycling targets for general packaging and for glass, aluminium, steel and plastic are time consuming and far from simple. Relevant sellers must register with, and demonstrate compliance to the Environment Agency or the Scottish Environment Protection Agency, either directly or via a registered compliance scheme.

Failure to register is a criminal offence and one which the regulators have been enforcing with increasing aggression. Failure to meet the percentage recovery/recycling obligations is also a criminal offence, although this has been pursued less vigorously to date, due to the complexity of demonstrating compliance or non-compliance with the Regulations.

Following this judgment, brewers and other drinks suppliers will continue to be subject to their other producer obligations but this judgment will mean that they are no longer obliged to pick up the cost of the 'seller' obligation. To that extent brewers and other drinks suppliers could effect a considerable cost saving with a corresponding cost increase for the operators of the pubs, cafes, bars and restaurants etc.

Other commercial/legal implications

In addition to considering whether the Regulations apply to a particular publican, hotelier or café operator, etc, other commercial and legal implications to take into account are:

• Contractual arrangements between brewers and other drinks suppliers on the one hand and those running hotels, restaurants, cafes, pubs, clubs and bars on the other. These should be reviewed to determine whether the contract provides expressly or implicitly which party is to bear the costs of the 'sellers' packaging obligation.
• Brewers and other drinks suppliers who directly arrange to take back empties. If they are not already doing so, they will have to treat the empties as 'waste' for the purpose of waste laws - potentially this will require their registration as waste carriers, registration of their vehicles used to collect the empties and waste management licensing issues in relation to the sites used for the collection and storage of the empties.
• Anyone broking the collection of empties as part of a drinks supply contract. They are likely to be 'brokers' of waste and may have to register as such with the regulators.
• All parties will have to comply with the statutory duty of care as respects waste in respect of the empties.

For further information on any of the issues raised please contact Paul Sheridan at [email protected] or on +44 (0)20 7367 2186 or Tom Bainbridge at [email protected] or at +44 (0)20 7367 3174