Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd

JurisdictionNorthern Ireland
CourtSupreme Court
JudgeLady Arden,Lord Lloyd-Jones,Lord Kitchin,Lord Wilson,Lord Carnwath
Judgment Date19 Aug 2020
Neutral Citation[2020] UKSC 36

[2020] UKSC 36

Supreme Court

On appeal from: [2018] NICA 7

before

Lord Wilson

Lord Carnwath

Lord Lloyd-Jones

Lady Arden

Lord Kitchin

Peninsula Securities Ltd
(Respondent)
and
Dunnes Stores (Bangor) Ltd
(Appellant) (Northern Ireland)

Appellant

Michael Humphreys QC

Margaret Gray QC

(Instructed by Pinsent Masons Belfast LLP)

Respondent

David Dunlop BL

Alistair Fletcher BL

(Instructed by A & L Goodbody (Belfast))

Heard on 28 and 29 January 2020

Lord Wilson

( with whom Lord Lloyd-Jones, Lady Arden and Lord Kitchin agree)

Introduction
1

This is another appeal which concerns the doctrine against restraint of trade. If a covenant falls within what I will simply call the doctrine, it is unenforceable against the covenantor unless it is reasonable. Last year, in Egon Zehnder Ltd v Tillman [2019] UKSC 32, [2020] AC 154, the court was required to address aspects of the doctrine. In para 29 it considered what it called the outer reaches of the doctrine, by reference in particular to the decision of the House of Lords in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269. But, as it explained in para 30, there was no need for any closer study of those outer reaches in the light of the facts of that case. The present appeal permits no such escape.

2

A developer of a shopping centre leases part of it to a well-known retailer. He covenants with the retailer that he will not allow any substantial shop to be built on the rest of the centre in competition with the retailer. In due course he assigns his interest in the centre to a company. The company considers that the centre is ailing and that the covenant is stunting its ability to revive it. In these proceedings brought against the retailer, the company seeks a declaration that the covenant by which it is currently bound engages the doctrine; that it is unreasonable; and that it is therefore unenforceable. To date the courts have addressed only the first question raised by the company's claim: does the covenant engage the doctrine? Yes, ruled the Court of Appeal in Northern Ireland (Stephens LJ, who delivered the judgment of the court, Sir Ronald Weatherup and Sir Richard McLaughlin) on 9 February 2018, [2018] NICA 7, when proceeding to remit the case to the High Court to consider whether the covenant was reasonable. So it is the retailer which now appeals to this court against that ruling.

Facts
3

Mr Shortall is a property developer. In 1979, in his own name, he bought land in Springtown, Londonderry, which, for planning purposes, had been zoned for retail use. At that time Londonderry was, in his own words, an economic and political wasteland. The site comprised about five and a half acres, defined, for land registry purposes, as Folio 25992 County Londonderry. In 1980 he obtained planning permission to develop the site so as to yield 32,000 square feet of gross retail space.

4

Mr Shortall sought an “anchor tenant”, a substantial and prestigious retail company which would lease a significant part of the site and whose presence would persuade other retailers to lease other parts of it, thus making the proposed centre as attractive as possible to shoppers. To this end, he approached Dunnes Stores (“Dunnes”), which comprised a group of companies based in Dublin and which operated a number of substantial retail outlets of high repute throughout Ireland. Early in 1980 Mr Ben Dunne met Mr Shortall at the site and expressed reservations about the economic viability of establishing a retail unit there. But at a further meeting in about May 1980 they orally agreed outline terms. These were that Mr Shortall would grant Dunnes a long lease of part of the site in consideration of its payment to him of a premium of £50,000 and a nominal ground rent. But Mr Dunne required Mr Shortall to promise not to cause or permit the establishment on any other part of the site of a unit measuring more than about 3,000 square feet for the sale of food or textiles. Mr Shortall agreed. In his evidence he said:

“I … had little or no choice but to ‘grab’ the offer made by Mr Dunne with both hands, as it was the ‘only deal in town’.”

5

In November 1980 Mr Shortall and Dunnes signed Heads of Agreement. Dunnes decided that its Belfast company, Dunnes Stores (Bangor) Ltd, which is the appellant in this appeal, should sign the Heads and take the proposed lease. The main terms recorded in the Heads were that Dunnes should take a lease of the part of the site there delineated; that it should bear the cost of building its retail unit there; that Mr Shortall should construct at least six units on the rest of the site; and that Dunnes should contribute one third of the cost of constructing the roads, footpaths and car park on the site. Nothing turns on the omission from the Heads of Mr Shortall's promise not to establish on the rest of the site any substantial unit in competition with Dunnes.

6

On 2 February 1981 the proposed lease was duly executed. Attached to it was a map of the land in Folio 25992, on which the area subject to the lease was edged in red. The area was said to comprise just in excess of an acre so the rest of the site will have comprised about four and a half acres. The lease was for 999 years in consideration of a premium of £50,000 (which Dunnes paid) and of an annual ground rent of £100. It was Mr Shortall, by his solicitors, who had proposed a term of that length. Upon the area subject to the lease Dunnes covenanted to erect a retail unit measuring at least 15,000 square feet at ground floor level within two years of the grant of detailed planning permission. As provided in the Heads of Agreement, it also covenanted to contribute one third of the cost of the construction of the common areas, in particular of the car park.

7

In the lease, as also foreshadowed in the Heads of Agreement, Mr Shortall covenanted to construct at least six shop units in an enclosed mall in a specified location adjoining the area subject to the lease. He also entered into the restrictive covenant which is the subject of these proceedings. The covenant, as I will call it, is in the following terms:

“That any development on the Lessor's lands comprised in the Lessor's folio and on his other lands adjoining the premises shall not contain a unit in size measuring three thousand square feet or more for the … purpose of trading in textiles Provisions or groceries in one or more units.”

The reference to Mr Shortall's “other lands adjoining the premises” is a reference to a small, rectangular piece of land which adjoins the western end of the area leased to Dunnes but which for some reason was not comprised in Folio 25992. In what follows it can be ignored. Mr Shortall also covenanted that, were he to assign any interest in any part of the land in Folio 25992, he would ensure that the assignee would, for the benefit of Dunnes, covenant to observe all his covenants in the lease.

8

Dunnes duly constructed its store. Acting through one of his companies, Mr Shortall duly constructed the shop units in the mall; and he found tenants for them. He also constructed the car park, to the cost of which Dunnes duly contributed. In October 1982 the shopping centre opened. At first it was a great success.

9

Peninsula Securities Ltd (“Peninsula”), the respondent to this appeal, is another of Mr Shortall's companies. Of the 100 issued shares in it, he holds 99 and his wife holds the other. He is also its managing director. It is a property holding company. By transfer registered on 27 April 1983, Mr Shortall assigned to Peninsula his freehold interest in all the land in Folio 25992, thus including not only his reversionary interest in the land leased to Dunnes but also his interest in all the other land in the folio which was subject to the covenant.

10

The success of the shopping centre at Springtown has declined. The reasons for its decline are disputed and, at any rate at this stage, are irrelevant. Peninsula blames the covenant for causing the decline and for stunting its ability to reverse it. Dunnes disagrees.

Proceedings
11

In 2010 Peninsula made a reference to the Lands Tribunal pursuant to the Property (Northern Ireland) Order 1978 ( SI 1978/459) (“the 1978 Order”). It asked the tribunal to declare under article 4 of the order that the covenant represented an impediment to enjoyment of its land and, in that (so Peninsula said) the impediment was unreasonable, to order under article 5 that it should be modified or extinguished. The suggested modification was to substitute for the reference in the covenant to 3,000 square feet a reference to 55,000 square feet. But Peninsula also included in its reference to the tribunal a claim for a declaration that the covenant was unenforceable at common law as being in unreasonable restraint of trade. In due course Peninsula accepted that the tribunal lacked jurisdiction to determine its common law claim. So instead it made the claim in proceedings which it brought in the Queen's Bench Division of the High Court of Justice in Northern Ireland. By successive amendments to its statement of claim, it added two further claims to the court proceedings. The first was a claim that the covenant was void under section 2 of the Competition Act 1998. On receipt of Dunnes' expert evidence in answer, Peninsula withdrew that claim and substituted its claim, already made to the Lands Tribunal, under the 1978 Order, which accordingly had to be recast so as to fall within article 6 of it. But Peninsula there made clear that it relied on its claim under the 1978 Order only in the event of the failure of its common law claim. By its amended Defence, Dunnes disputed both claims and counterclaimed that, in the event of any modification or extinguishment of the covenant under the 1978 Order, it should be awarded compensation. The proceedings in the Lands Tribunal have therefore come to...

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